10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   to 

COMMISSION FILE NUMBER 0-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0628530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9740 Scranton Road, San Diego, CA 92121

(Address of principal executive offices)

(858) 404-8800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes   þ No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ¨ No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ¨         Accelerated filer   þ Non-accelerated filer   ¨ Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ¨	No   þ
The registrant had 29,897,244 shares of its common stock, par value $0.0001 per share, outstanding at December 31, 2010.

PRICESMART, INC.

INDEX TO FORM 10-Q

		Page
PART I—FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	1
	CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER 30, 2010 (UNAUDITED) AND AUGUST 31, 2010	2
	CONSOLIDATED STATEMENTS OF INCOME  FOR THE THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009 - UNAUDITED	3
	CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009 - UNAUDITED	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009 - UNAUDITED	5
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4.	CONTROLS AND PROCEDURES	45
PART II—OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	46
ITEM 1A.	RISK FACTORS	46
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	47
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	47
ITEM 4.	(REMOVED AND RESERVED)	47
ITEM 5.	OTHER INFORMATION	47
ITEM 6.	EXHIBITS	48

i

 PART I—FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

PriceSmart, Inc.’s (“PriceSmart” or the “Company”) unaudited consolidated balance sheet as of November 30, 2010 and the consolidated balance sheet as of August 31, 2010, the unaudited consolidated statements of income for the three  months  ended November 30, 2010 and 2009, the unaudited consolidated statements of equity for the three months ended November 30, 2010 and 2009, and the unaudited consolidated statements of cash flows for the three months ended November 30, 2010 and 2009, are included herein. Also included herein are the notes to the unaudited consolidated financial statements.

1

PRICESMART, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

		November 30,
		2010		August 31,
		(Unaudited)		2010
ASSETS
Current Assets:
Cash and cash equivalents	$	48,454		$	73,346
Short-term restricted cash		1,240			1,240
Receivables, net of allowance for doubtful accounts of $17 and $15 as of November 30 and August 31, 2010, respectively.		3,669			2,855
Merchandise inventories		169,355			131,190
Deferred tax assets – current		4,494			3,639
Prepaid expenses and other current assets		25,400			21,879
Assets of discontinued operations		924			692
Total current assets		253,536			234,841
Long-term restricted cash		13,631			5,640
Property and equipment, net		277,467			265,544
Goodwill		37,445			37,471
Deferred tax assets – long term		15,361			16,637
Other assets		4,369			4,341
Investment in unconsolidated affiliates		8,092			8,091
Total Assets	$	609,901		$	572,565
LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings	$	3,972		$	3,551
Accounts payable		143,813			124,401
Accrued salaries and benefits		10,798			10,911
Deferred membership income		9,999			9,729
Income taxes payable		4,054			6,615
Other accrued expenses		12,805			12,095
Long-term debt, current portion		7,734			7,715
Deferred tax liability – current		409			357
Liabilities of discontinued operations		115			109
Total current liabilities		193,699			175,483
Deferred tax liability – long-term		1,554			1,198
Long-term portion of deferred rent		3,525			3,272
Long-term income taxes payable, net of current portion		3,654			3,564
Long-term debt, net of current portion		55,783			53,005
Total liabilities		258,215			236,522
Equity:
Common stock, $0.0001 par value, 45,000,000 shares authorized; 30,625,666 and 30,624,666 shares issued and 29,898,909 and 29,897,909 shares outstanding (net of treasury shares) as of November 30 and August 31, 2010, respectively.		3			3
Additional paid-in capital		380,307			379,368
Tax benefit from stock-based compensation		4,489			4,490
Accumulated other comprehensive loss		(16,820	)		(16,672	)
Accumulated deficit		(725	)		(15,578	)
Less: treasury stock at cost; 726,757 and 726,757 shares as of November 30 and August 31, 2010, respectively.		(15,568	)		(15,568	)
Total PriceSmart stockholders’ equity and total equity		351,686			336,043
Total Liabilities and Equity	$	609,901		$	572,565

See accompanying notes.  

2

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED—AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended
	November 30,
	2010			2009
Revenues:
Net warehouse club sales	$	377,331		$	308,653
Export sales		1,409			587
Membership income		5,425			4,649
Other income		1,907			1,530
Total revenues		386,072			315,419
Operating expenses:
Cost of goods sold:
Net warehouse club		317,813			261,717
Export		1,344			554
Selling, general and administrative:
Warehouse club operations		35,133			29,234
General and administrative		8,810			7,568
Pre-opening expenses		403			111
Total operating expenses		363,503			299,184
Operating income		22,569			16,235
Other income (expense):
Interest income		129			215
Interest expense		(956	)		(630	)
Other income (expense), net		(46	)		4
Total other expense		(873	)		(411	)
Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates		21,696			15,824
Provision for income taxes		(6,845	)		(5,401	)
Loss of unconsolidated affiliates		(5	)		(2	)
Income from continuing operations		14,846			10,421
Income from discontinued operations, net of tax		7			9
Net income		14,853			10,430
Net income attributable to noncontrolling interest		—			(53	)
Net income attributable to PriceSmart	$	14,853		$	10,377
Net income attributable to PriceSmart:
Income from continuing operations		14,846			10,368
Income (loss) from discontinued operations, net of tax		7			9
	$	14,853		$	10,377
Net income per share attributable to PriceSmart and available for distribution:
Basic net income per share from continuing operations	$	0.50		$	0.35
Basic net income (loss) per share from discontinued operations, net of tax	$	0.00		$	0.00
Basic net income per share	$	0.50		$	0.35
Diluted net income per share from continuing operations	$	0.50		$	0.35
Diluted net income (loss) per share from discontinued operations, net of tax	$	0.00		$	0.00
Diluted net income per share	$	0.50		$	0.35
Shares used in per share computations:
Basic		29,356			29,105
Diluted		29,362			29,163
Dividends per share	$	0.00		$	0.00

See accompanying notes.

3

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED—AMOUNTS IN THOUSANDS)  

								Tax Benefit			Accum-
								From			ulated											Total
								Stock-			Other											PriceSmart
						Additional		based			Compre-			Accum-								Stock-			Non-
	Common Stock					Paid-in		Compen-			hensive			ulated			Treasury Stock					holders'			Controlling			Total
	Shares			Amount		Capital		sation			Loss			Deficit			Shares		Amount			Equity			Interest			Equity
Balance at August 31, 2009		30,337		$	3	$	377,210	$	4,547		$	(17,230	)	$	(49,998	)		656	$	(14,134	)	$	300,398		$	770		$	301,168
Purchase of treasury stock		—			—		—		—			—			—			—		(1	)		(1	)		—			(1	)
Issuance of restricted stock awards		15			—		—		—			—			—			—		—			—			—			—
Forfeiture of restricted stock awards		(3	)		—		—		—			—			—			—		—			—			—			—
Exercise of stock options		53			—		346		—			—			—			—		—			346			—			346
Stock-based compensation		—			—		770		62			—			—			—		—			832			—			832
Change in fair value of interest rate swaps		—			—		—		—			(71	)		—			—		—			(71	)		—			(71	)
Net income		—			—		—		—			—			10,377			—		—			10,377			53			10,430
Translation adjustment		—			—		—		—			152			—			—		—			152			(19	)		133
Comprehensive income																							10,458			34			10,492
Balance at November 30, 2009		30,402		$	3	$	378,326	$	4,609		$	(17,149	)	$	(39,621	)		656	$	(14,135	)	$	312,033		$	804		$	312,837
Balance at August 31, 2010		30,625		$	3	$	379,368	$	4,490		$	(16,672	)	$	(15,578	)		727	$	(15,568	)	$	336,043		$	—		$	336,043
Exercise of stock options		1			—		7		—			—			—			—		—			7			—			7
Stock-based compensation		—			—		932		(1	)		—			—			—		—			931			—			931
Change in fair value of interest rate swaps, net of tax		—			—		—		—			50			—			—		—			50			—			50
Net income		—			—		—		—			—			14,853			—		—			14,853			—			14,853
Translation adjustment		—			—		—		—			(198	)		—			—		—			(198	)		—			(198	)
Comprehensive income																							14,705			—			14,705
Balance at November 30, 2010		30,626		$	3	$	380,307	$	4,489		$	(16,820	)	$	(725	)		727	$	(15,568	)	$	351,686		$	—		$	351,686

See accompanying notes.

4

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—AMOUNTS IN THOUSANDS)

	Three Months Ended
	November 30,
	2010			2009
Operating Activities:
Net income	$	14,853		$	10,430
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		4,237			3,636
Allowance for doubtful accounts		2			(2	)
(Gain)/loss on sale of  property and equipment		53			(4	)
Deferred income taxes		827			1,036
Discontinued operations		(9	)		(9	)
Excess tax deficiency (benefit) on stock-based compensation		1			(62	)
Equity in losses of unconsolidated affiliates		5			2
Stock-based compensation		932			770
Change in operating assets and liabilities:
Change in receivables, prepaid expenses and other current assets, accrued salaries and benefits, deferred membership income and other accruals		(7,813	)		102
Merchandise inventories		(38,165	)		(31,549	)
Accounts payable		19,414			11,868
Net cash used in continuing operating activities		(5,663	)		(3,782	)
Net cash provided by (used in) discontinued operating activities		(218	)		140
Net cash used in operating activities		(5,881	)		(3,642	)
Investing Activities:
Purchases of property and equipment		(14,199	)		(8,625	)
Proceeds from disposal of property and equipment		4			60
Capital contribution to Panama joint venture		—			(100	)
Net cash used in continuing investing activities		(14,195	)		(8,665	)
Net cash used in discontinued investing activities		—			—
Net cash used in investing activities		(14,195	)		(8,665	)
Financing Activities:
Proceeds from bank borrowings		12,951			13,582
Repayment of bank borrowings		(9,828	)		(6,427	)
Addition to restricted cash		(8,000	)		—
Excess tax (deficiency) benefit on stock-based compensation		(1	)		62
Purchase of treasury stock		—			(1	)
Proceeds from exercise of stock options		7			346
Net cash provided by (used in) financing activities		(4,871	)		7,562
Effect of exchange rate changes on cash and cash equivalents		55			(409	)
Net increase (decrease) in cash and cash equivalents		(24,892	)		(5,154	)
Cash and cash equivalents at beginning of period		73,346			44,193
Cash and cash equivalents at end of period	$	48,454		$	39,039

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	1,062	$	698
Income taxes	$	6,805	$	4,197

5

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

November 30, 2010

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“PriceSmart” or the “Company”) business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size, than warehouse clubs in the United States.  As of November 30, 2010, the Company had 28 warehouse clubs in operation in 11 countries and one U.S. territory (five in Costa Rica, four in Panama and Trinidad, three in Guatemala and the Dominican Republic, two in El Salvador and Honduras and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies).   The Company opened a new warehouse club in Santo Domingo, Dominican Republic (“Arroyo Hondo”) on Nov ember 5, 2010.  In November 2010, the Company through its Colombian subsidiary acquired approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 12.1 billion Colombian Pesos (the equivalent of approximately $6.5 million United States Dollars as of the acquisition date.)  The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011.   In addition to the warehouse clubs operated directly by the Company, there is one facility in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a small royalty fee.  The Company primarily operates in three segments based on geographic area.

Basis of Presentation - The interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").  These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the fiscal year ended August 31, 2010.  The interim consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries.  Intercompany transactions between the Company and its subsidiaries have been eliminated in consolida tion.

In accordance with the Financial Accounting Standards Board’s (“FASB”) revised guidance establishing general accounting standards and disclosure of subsequent events, the Company has evaluated subsequent events through the date and time these financial statements were issued. 

The Company has utilized net income, rather than net income from continuing operations, as the starting point on the consolidated statements of cash flows for the periods presented, in order to reconcile net income to net cash flows from operating activities as required by the indirect method.  Therefore, prior periods have been reclassified to conform to current year presentation.  This change had no effect on cash from operating activities.

6

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The interim consolidated financial statements of the Company included herein include the assets, liabilities and results of operations of the Company’s majority and wholly owned subsidiaries as listed below. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC, and reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to fairly present the financial position, results of operations, and cash flows for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. The results for interim periods are not necessarily indicative of the results for the full year.

The table below indicates the Company’s percentage ownership of and basis of presentation for each subsidiary as of November 30, 2010:  

Subsidiary	Countries	Ownership	Basis of Presentation
PriceSmart, Aruba	Aruba	100.0%	Consolidated
PriceSmart, Barbados	Barbados	100.0%	Consolidated
PriceSmart, Colombia	Colombia	100.0%	Consolidated(1)
PSMT Caribe, Inc.:
Costa Rica	Costa Rica	100.0%	Consolidated
Dominican Republic	Dominican Republic	100.0%	Consolidated
El Salvador	El Salvador	100.0%	Consolidated
Honduras	Honduras	100.0%	Consolidated
PriceSmart, Guam	Guam	100.0%	Consolidated(2)
PriceSmart, Guatemala	Guatemala	100.0%	Consolidated
PriceSmart Holdings, Inc.	St. Lucia	100.0%	Consolidated(3)
PriceSmart, Jamaica	Jamaica	100.0%	Consolidated
PriceSmart, Nicaragua	Nicaragua	100.0%	Consolidated
PriceSmart, Panama	Panama	100.0%	Consolidated
PriceSmart Exempt SRL	Barbados	100.0%	Consolidated(3)
PriceSmart, Trinidad	St. Lucia/Trinidad	100.0%	Consolidated(4)
PriceSmart, U.S. Virgin Islands	U.S. Virgin Islands	100.0%	Consolidated
GolfPark Plaza, S.A.	Panama	50.0%	Equity(5)
Price Plaza Alajuela PPA, S.A.	Costa Rica	50.0%	Equity(5)
Newco2	Costa Rica	50.0%	Equity(5)

(1)	During fiscal year 2010, the Company created this subsidiary to record the investment and costs associated with the construction of membership warehouse clubs in Colombia.
(2)	Entity is treated as discontinued operations in the consolidated financial statements.
(3)	These subsidiaries act as investment and holding companies for the Company’s subsidiaries in Trinidad and Jamaica.
(4)	The Company acquired the remaining 5% ownership in May 2010, fiscal year 2010.  (See Note 12 - Acquisition of Noncontrolling Interest).
(5)	Purchases of joint venture interests during the first quarter of fiscal year 2009 are recorded as investment in unconsolidated affiliates on the consolidated balance sheets. (See Note 13 – Unconsolidated Affiliates)

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.  

Variable Interest Entities –  The Company reviews and determines at the start of each arrangement, or subsequently if a reconsideration event occurs, whether any of its investments in joint ventures are a Variable Interest Entity (“VIE”) and whether it must consolidate a VIE and/or disclose information about its involvement in a VIE. The Company has determined that the joint ventures for GolfPark Plaza, Price Plaza Alajuela and Newco2 are VIEs.  The Company has determined that it is not the primary beneficiary of the VIEs and, therefore, has accounted for these entities under the equity method.  

Cash and Cash Equivalents – Cash and cash equivalents represent cash and short-term investments with maturities of three months or less when purchased.

Restricted Cash – As of November 30, 2010, the Company had short-term restricted cash of approximately $1.2 million.  This consisted of the current portion of a certificate of deposit maintained by the Company’s Honduras subsidiary with the Banco Del Pais related to the loan agreement entered into by the subsidiary with Banco del Pais.  The Company has long-term restricted cash of approximately $13.6 million. This consisted of approximately $4.8 million for the long-term portion of the Banco Del Pais certificate of deposit, $8.0 million for a time deposit pledged by the Company for the establishment of a loan entered into by the Company’s Colombia subsidiary and deposits made directly with federal regulatory agencies and within banking i nstitutions in compliance with federal regulatory requirements in Costa Rica and Panama of approximately $831,000.

7

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or market. The Company provides for estimated inventory losses and obsolescence between physical inventory counts on the basis of a percentage of sales.  The provision is adjusted periodically to reflect the trend of actual physical inventory count results, with physical inventories occurring primarily in the second and fourth fiscal quarters.  In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.

Allowance for Doubtful Accounts – The Company generally does not extend credit to its members, but may do so for specific wholesale, government, other large volume members and for subtenants. The Company maintains an allowance for doubtful accounts based on assessments as to the probability of collection of specific customer accounts, the aging of accounts receivable, and general economic conditions.

Property and Equipment – Property and equipment are stated at historical cost. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. The useful life of fixtures and equipment ranges from three to 15 years and that of buildings from ten to 25 years. Leasehold improvements are amortized over the shorter of the life of the improvement or the expected term of the lease. In some locations, leasehold improvements are amortized over a period longer than the initial lease term as management believes it is reasonably assured that the renewal option in the underlying lease will be exercised as an economic penalty may be incurred if the option is not exercised. The sale or purchase of property and equipment is recognized upon legal transfer of property. For property and equipment sales, if any long term notes are carried by the Company as part of the sales terms, the sale is reflected at the net present value of current and future cash streams.

Acquisition of Business – The Company’s business combinations, where the Company acquires control of one or more businesses, are accounted for under the acquisition method of accounting and include the results of operations of the acquired business from the date of acquisition.  Net assets of the acquired business are recorded at their fair value at the date of the acquisition.  Any excess of the purchase price over the fair value of tangible net assets acquired is included in goodwill in the accompanying consolidated balance sheets.

Changes in the Company’s ownership interest in subsidiaries, while the Company retains controlling financial interest in the subsidiary, are accounted for as an equity transaction. No gain or loss is recognized in consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest is adjusted to reflect the change in the Company’s ownership interest in the subsidiary.  Any difference between the fair value of the consideration received or paid and the book value of the noncontrolling interest is recognized in equity attributable to the parent.

Lease Accounting – Certain of the Company's operating leases where the Company is the lessee (see Revenue Recognition Policy for lessor accounting), provide for minimum annual payments that increase over the life of the lease. The aggregate minimum annual payments are expensed on the straight-line basis beginning when the Company takes possession of the property and extending over the term of the related lease including renewal options when the exercise of the option is reasonably assured as an economic penalty may be incurred if the option is not exercised. The amount by which straight-line rent exceeds actual lease payment requirements in the early years of the leases is accrued as deferred rent and reduced in later years when the actual cash payment requir ements exceed the straight-line expense. The Company also accounts in its straight-line computation for the effect of any “rental holidays” and lessor-paid tenant improvements. In addition to the minimum annual payments, in certain locations, the Company pays additional contingent rent based on a contractually stipulated percentage of sales.

Fair Value Measurements – The Company measures the fair value for all financial and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring or nonrecurring basis.  The Company measures the fair value for interest rate swaps on a recurring basis.  The nonfinancial assets and liabilities are recognized at fair value subsequent to initial recognition when there is evidence of impairment.  There were no material non-financial assets and liabilities deemed impaired and measured at fair value on a nonrecurring basis for the three-month period ended November 30, 2010.

The Company has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company was not required to revalue any assets or liabilities utilizing Level 1 or Level 3 inputs at the balance sheet dates.  The Company's Level 2 assets and liabilities at the balance sheet dates primarily included cash flow hedges (interest rate swaps).  The Company did not make any significant t ransfers in and out of Level 1 and Level 2 fair value tiers.

Valuation techniques utilized in the fair value measurement of assets and liabilities presented on the Company’s consolidated balance sheets were not changed from previous practice during the reporting period.  The Company discloses the valuation techniques and any change in method of such within the body of each footnote.

8

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

   The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the Company’s consolidated balance sheet as of November 30, 2010 (in thousands): 

Assets and Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Other accrued expenses	$	—	$	702	$	—		$	702
Total	$	—	$	702	$	—		$	702

The fair value of derivatives is disclosed in further detail in Note 11 - Interest Rate Swaps.  

As of November 30, 2010 and August 31, 2010, the Company had no significant measurements of financial assets or liabilities at fair value on a nonrecurring basis.

Goodwill – Goodwill resulting from certain business combinations totaled $37.4 million at November 30, 2010 and $37.5 million as of August 31, 2010.  Foreign exchange translation gains and losses related to this balance sheet caption accounted for the change during the three month period ended November 30, 2010. The Company reviews previously reported goodwill at the entity reporting level for impairment on an annual basis or more frequently if circumstances dictate.  No impairment of goodwill has been recorded to date.

Derivative Instruments and Hedging Activities – Derivative instruments and hedging activities consist of interest rate swaps.  Interest rate swaps are accounted for as cash flow hedges. Under cash flow hedging, the effective portion of the fair value of the derivative, calculated as the net present value of the future cash flows, is deferred on the consolidated balance sheets in accumulated other comprehensive loss. If any portion of an interest rate swap were determined to be an ineffective hedge, the gains or losses from changes in market value would be recorded directly in the consolidated statements of income. Amounts recorded in accumulated other comprehensive loss are released to earnings in the same period that the hedged transaction impacts consolidat ed earnings. (See Note 11—Interest Rate Swaps.)

Revenue Recognition – The Company recognizes merchandise sales and export sales revenue when title passes to the customer. Membership income represents annual membership fees paid by the Company’s warehouse club members, which are recognized ratably over the 12-month term of the membership.  Membership refunds are prorated over the remaining term of the membership, accordingly, no refund reserve is required to be established for the periods presented.  The Company recognizes and presents revenue-producing transactions on a net of tax basis.  The Company recognizes gift certificates sales revenue when the certificates are redeemed. The outstanding gift certificates are reflected as "Other accrued expenses" in the consolidated balance sheets. These gift certificates generally have a one-year stated expiration date from the date of issuance.  The Company periodically reviews unredeemed outstanding gift certificates, and the gift certificates that have expired are recognized as “Revenues: Other Income” on the consolidated statements of income. Operating leases, where the Company is the lessor, with lease payments that have fixed and determinable rent increases are recognized as revenue on a straight-line basis over the lease term. The Company also accounts in its straight-line computation for the effect of any "rental holidays." Contingent rental revenue is recognized as the contingent rent becomes due per the individual lease agreements.

Cost of Goods Sold – The Company includes the cost of merchandise, food service and bakery raw materials, and one hour photo supplies in cost of goods sold. The Company also includes the external and internal distribution and handling costs for supplying such merchandise, raw materials and supplies to the warehouse clubs. External costs include inbound freight, duties, drayage, fees, insurance, and non-recoverable value-added tax related to inventory shrink, spoilage and damage. Internal costs include payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense, and building and equipment depreciation at its distribution facilities.

Vendor consideration consists primarily of volume rebates, time limited product promotions and prompt payment discounts. Volume rebates are generally linked to pre-established purchase levels and are recorded as a reduction of cost of goods sold when the achievement of these levels is confirmed by the vendor in writing or upon receipt of funds, whichever is earlier. On a quarterly basis, the Company calculates the amount of rebates recorded in cost of goods sold that relates to inventory on hand and this amount is reclassified as a reduction to inventory, if significant. Product promotions are generally linked to coupons that provide for reimbursement to the Company from vendor rebates for the product being promoted.  The Company records the reduction in cost of goods sold on a transactional basis for these programs. &# 160;Prompt payment discounts are taken in substantially all cases, and therefore, are applied directly to reduce the acquisition cost of the related inventory, with the resulting effect recorded to cost of goods sold when the inventory is sold.

9

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Selling, General and Administrative – Selling, general and administrative costs are comprised primarily of expenses associated with warehouse operations. Warehouse operations include the operating costs of the Company's warehouse clubs, including all payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense, building and equipment depreciation, and bank and credit card processing fees. Also included in selling, general and administrative expenses are the payroll and related costs for the Company's U.S. and regional purchasing and management centers.

Pre-Opening Costs – The Company expenses pre-opening costs (the costs of start-up activities, including organization costs and rent) as incurred.

Asset Impairment Costs –  The Company periodically evaluates its long-lived assets for indicators of impairment. Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity.  These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair value.  Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges.

Closure Costs – The Company records the costs of closing warehouse clubs as follows:  severance costs that are determined to be an arrangement for one-time employee termination benefits are accrued at the date the plan of termination has received management authority and approval, the plan identifies the number of employees, job classification, functions, locations and expected completion dates, the plan establishes the terms of the severance, and management has deemed it unlikely that significant changes to the plan will be made.  In addition the plan must have been communicated to employees (referred to as the communication date).  Lease obligations are accrued at the cease use date by calculating the net present value of the minimum lease pa yments net of the fair market value of rental income that is expected to be received for these properties from third parties. Gain or loss on the sale of property, buildings and equipment is recognized based on the cash or net present value of future cash to be received as compensation upon consummation of the sale. All other costs are expensed as incurred. 

Contingencies and Litigation –  The Company accounts and reports for loss contingencies if (a) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the consolidated financial statements and (b) the amount of loss can be reasonably estimated.  

Foreign Currency Translation – The assets and liabilities of the Company’s foreign operations are primarily translated to U.S. dollars when the functional currency in the Company’s international subsidiaries is the local currency and not U.S. dollars. Assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and revenue, costs and expenses are translated at average rates of exchange in effect during the period. The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss.  These adjustments will affect net income upon the sale or liquidation of the underlying investment.

Monetary assets and liabilities in currencies other than the functional currency of the respective entity are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gains (losses), including repatriation of funds, which are included as a part of costs of goods sold in the consolidated statements of income. For the first three months of fiscal years 2011 and 2010, the Company recorded approximately $378,000 and $383,000 in foreign exchange gains, respectively.

Stock-Based Compensation – Compensation related to stock options is accounted for by applying the valuation technique based on the Black-Scholes model. Compensation related to stock awards is based on the fair market value at the time of grant with the application of an estimated forfeiture rate, as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur. Upon vesting, the Company records compensation expense for the previously estimated forfeiture on stock awards no longer under risk of forfeiture. The Company records as additional paid-in capital the tax savings resulting from tax deductions in excess of expense for stock-based compensation or a reduction in paid-in capital from the tax deficiency resulting from stock-ba sed compensation in excess of the related tax deduction, based on the Tax Law Ordering method.  In addition, the Company reflects the tax saving (deficiency) resulting from the taxation of stock-based compensation as a financing cash flow in its consolidated statement of cash flows, rather than as operating cash flows.

Income Taxes – The Company is required to file federal and state income tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal, state and international taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority may disagree with respect to the incom e tax positions taken by the Company (“uncertain tax positions”) and, therefore, require the Company to pay additional taxes. As required under applicable accounting rules, the Company accrues an amount for its estimate of additional income tax liability, including interest and penalties, which the Company could incur as a result of the ultimate or effective resolution of the uncertain tax positions. The Company reviews and updates the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, upon completion of tax audits, upon expiration of statutes of limitation, or upon occurrence of other events.

10

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company accounts for uncertain income tax positions by accruing for the estimated additional amount of taxes for the uncertain tax positions when the uncertain tax position does not meet the more likely than not standard for sustaining the position.

As of November 30, 2010 and August 31, 2010, the Company had $13.5 million and $13.6 million, respectively, of aggregate accruals for uncertain tax positions (“gross unrecognized tax benefits”). Of these totals, $2.1 million and $2.0 million, respectively, represent the amount, as of these dates, of net unrecognized tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

The Company records the aggregate accrual for uncertain tax positions as a component of current or long-term income taxes payable and the offsetting amounts as a component of the Company’s net deferred tax assets and liabilities. These liabilities are generally classified as long-term, even if the underlying statute of limitation will expire in the following twelve months. The Company classifies these liabilities as current if it expects to settle them in cash in the next twelve months. As of November 30, 2010 and August 31, 2010, the Company did not expect to make cash payments for these liabilities in the respective following 12 months.

The Company expects changes in the amount of unrecognized tax benefits in the next twelve months as the result of a lapse in various statutes of limitations. For the three months ended November 30, 2010 and 2009, the Company did not record a net reduction in income tax expense as the result of a lapse in the underlying statute of limitations. The lapse of statutes of limitation in the twelve-month period ending November 30, 2011 would result in a reduction to long-term income taxes payable totaling $1.0 million.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. Any such items that are unpaid at the balance sheet date and not projected to be paid within the following 12 months are reflected in the long-term income tax payable caption on the consolidated balance sheets. As of November 30, 2010 and August 31, 2010, the Company had accrued $1.6 million and $1.5 million, respectively, for the payment of interest and penalties.

The Company has various audits and appeals pending in foreign jurisdictions. The Company does not anticipate that any adjustments from these audits and appeals would result in a significant change to the results of operations, financial condition or liquidity.

Tax expense for the first quarter of fiscal year 2011 was $6.8 million on pre-tax income of $21.7 million, as compared to $5.4 million of tax expense on pre-tax income of $15.8 million for the first quarter fiscal year 2010. The effective tax rate for the first quarter of fiscal year 2011 is 31.6% as compared to 34.1% for first quarter of fiscal year 2010. The decrease in the effective tax rate is primarily attributable to a benefit from the re-measurement of the U.S. deferred tax assets of $437,000 due to a change in the U.S. statutory tax rate that is applicable to the current year, from 34% to 35%.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its major jurisdictions except for the fiscal years subject to audit as set forth in the table below:

Tax Jurisdiction	Fiscal Years Subject to Audit
U.S. federal	1995 through 2001 and 2003 through 2010
California (U.S.)	2000 through 2001 and 2004 through 2010
Florida (U.S.)	2000 through 2001 and 2003 through 2010
Aruba	2002 to the present
Barbados	2002 to the present
Costa Rica	2007 to the present
Dominican Republic	2006 to the present
El Salvador	2007 to the present
Guatemala	2006 to the present
Honduras	2006 to the present
Jamaica	2004 to the present
Mexico	2006 to the present
Nicaragua	2007 to the present
Panama	2007 to the present
Trinidad	2004 to the present
U.S. Virgin Islands	2001 to the present
Colombia	2009 to the present

11

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Pronouncements

FASB ASC 310

In July 2010, the Financial Accounting Standards Board (“FASB”), issued amended guidance with regard to disclosures about the credit quality of financing receivables and the allowance for credit losses.  This update is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses by providing disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The Company is required to adopt this amended guidance on th e disclosures as of the end of a reporting period and it is effective for interim and annual reporting periods ending on or after December 15, 2010.  The adoption of this guidance on disclosures will not have an impact on the Company’s consolidated financial statements or disclosures with regard to financing receivables.

FASB ASC 810

In January 2010, the FASB issued a clarification of scope with regard to accounting for noncontrolling interest in consolidation.  The Company adopted the original guidance as of the beginning of its annual reporting period beginning on September 1, 2009 (fiscal year 2010) and for all subsequent interim and annual periods.  The adoption of this amendment did not have a material effect on the Company’s financial position or results of operations.  In May 2010, the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary.  The Company recorded the change in the ownership interest as an equity transaction, adjusting additional paid-in capital for the difference between the fair value of consideration paid less the book value of the noncontrolling interest (see Not e 12 - Acquisition of Noncontrolling Interest).

FASB ASC 810

In December 2009, the FASB amended guidance and implemented changes regarding how the process by which a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design, and the reporting entity's ability to direct the activities that most significantly impact the other entity’s economic performance.  The guidance also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.  A reporting entity will be req uired to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The Company is required to adopt this guidance as of the beginning of its first annual reporting period that begins after November 15, 2009, which is fiscal year 2011 for the Company.   The adoption of the standard did not have a material effect on the Company's consolidated financial statements.

12

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 3 – DISCONTINUED OPERATIONS

In accordance with FASB guidance on accounting for the impairment or disposal of long-lived assets the accompanying consolidated financial statements reflect the results of operations and financial position of the Company’s activities in Guam as discontinued operations.  Following the closure of the Guam operations in December 2003, the Company included the results of operations from Guam in the asset impairment and closure costs line of the consolidated statements of income through May 2005. However, after the sale of the Philippine operations in August 2005, the results of the Philippines and Guam activities have been consolidated in the discontinued operations line of the consolidated statements of income. Management views these activities as one activity managed under a shared man agement structure. Cash flow activities related to the Guam discontinued operations’ leased property will terminate in August 2011, which is the end date of the lease term.

The assets and liabilities of the discontinued operations are presented in the consolidated balance sheets under the captions “Assets of discontinued operations” and “Liabilities of discontinued operations.” The underlying assets and liabilities of the discontinued operations for the periods presented are as follows (in thousands):

	November 30, 2010		August 31, 2010
Cash and cash equivalents	$	376	$	41
Accounts receivable, net		199		219
Prepaid expenses and other current assets		39		39
Other assets		310		393
Assets of discontinued operations	$	924	$	692
Other accrued expenses	$	115	$	109
Liabilities of discontinued operations	$	115	$	109

The Company’s former Guam operation has a deferred tax asset of $2.6 million, primarily generated from NOLs. This deferred tax asset has a 100% valuation allowance, as the Company currently has no plans that would allow it to utilize these losses. Additionally, a significant portion of these losses are limited as to future use by the Company.

The following table sets forth the income (loss) from the discontinued operations of each period presented, in thousands.

	Three Months Ended
	November 30,
	2010		2009
Net warehouse club sales	$	—	$	—
Pre-tax income (loss) from discontinued operations		7		9
Provision for income taxes		—		—
Income (loss) from discontinued operations, net of tax	$	7	$	9

The income (loss) from discontinued operations, net of tax for the three months ended November 30, 2010 and 2009 of approximately $7,000 and $9,000, respectively, is the net result of the subleasing activity in Guam. 

13

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

	November 30, 2010			August 31, 2010
Land	$	87,536		$	81,187
Building and improvements		172,586			171,828
Fixtures and equipment		90,509			88,090
Construction in progress		19,800			13,683
Total property and equipment, recorded at historical cost		370,431			354,788
Less: accumulated depreciation		(92,964	)		(89,244	)
Property and equipment, net	$	277,467		$	265,544

Building and improvements includes net capitalized interest of approximately $3.1 million and $3.2 million as of November 30, 2010 and August 31, 2010, respectively. Construction in progress includes capitalized interest of $636,000 and $445,000 as of November 30, 2010 and August 31, 2010, respectively.  For the first three months of fiscal year 2011, the Company recorded approximately $138,000 in translation adjustments that decreased the carrying value of the total property and equipment for the period.  For the fiscal year 2010, the Company recorded approximately $267,000 in translation adjustments that increased the carrying value of the total property and equipment for the period.

In November 2010, the Company through its Colombian subsidiary acquired approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 12.1 billion Colombian Pesos (the equivalent of approximately $6.5 million United States Dollars as of the acquisition date).  The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011.  The Company initially paid approximately $4.3 million in November 2010, and upon the completion of certain improvements, expected to occur by March 2011, the Company will then make the final payment of approximately $2.2 million.

The Company continued with the development of new warehouse club sites and the expansion of existing warehouse clubs in Latin America and the Caribbean.  Construction costs within these two segments for the three months ended November 30, 2010 were approximately $513,000 and $3.8 million, respectively.  The Company continued its expansion of the Miami warehouse, recording costs related to the expansion of approximately $151,000 for the first three months of fiscal year 2011.  In addition, the Company continued to acquire fixtures and equipment for new warehouse club sites, the expansion of existing warehouse clubs and corporate offices in Latin America, the Caribbean and the United States.  The Company acquired fixtures and equipment for approximately $1.3 million, $3.4 million an d $102,000, respectively, in these segments for the three months ended November 30, 2010.  The Company acquired approximately $567,000 of software and computer hardware during the three months ended November 30, 2010.

During the first three months ended November 30, 2009, the Company continued with the development of new warehouse club sites and the expansion of existing warehouse clubs in Latin America and the Caribbean.  Construction costs within these two segments for the three months ended November 30, 2009 were approximately $1.8 million and $3.4 million, respectively. In addition, the Company continued to acquire fixtures and equipment for new warehouse club sites, the expansion of existing warehouse clubs and corporate offices in Latin America, the Caribbean and the United States.  The Company acquired fixtures and equipment for approximately $1.5 million, $1.4 million and $34,000, respectively, in these segments for the three months ended November 30, 2009.  The Company acquired approxi mately $574,000 of software and computer hardware during the three months ended November 30, 2009.

Depreciation and amortization expense for the first three months of fiscal years 2011 and 2010 was approximately $4.2 million and $3.6 million, respectively.

14

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 5 – EARNINGS PER SHARE

Basic net income per share is computed by dividing the net income attributable to PriceSmart for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income attributable to PriceSmart for the period by the weighted average number of common and common equivalent shares outstanding during the period. The Company excludes stock options from the calculation of diluted net income per share when the combined exercise price, average unamortized fair values and assumed tax benefits upon exercise are greater than the average market price for the Company’s common stock because their effect is anti-dilutive.

Effective September 1, 2009, the Company adopted FASB guidance which addresses whether instruments granted in share-based payment transactions are participating securities and, therefore, have a potential dilutive effect on earnings per share (“EPS”).  The following table sets forth the computation of net income per share for the three months ended November 30, 2010 and 2009 (in thousands, except per share amounts):

	Three Months Ended
	November 30,
	2010			2009
Net income from continuing operations attributable to PriceSmart	$	14,846		$	10,368
Less: Earnings and dividends allocated to unvested stockholders		(277	)		(218	)
Basic undistributed net earnings available to common stockholders from continuing operations attributable to PriceSmart		14,569			10,150
Net earnings available to common stockholders from continuing operations attributable to PriceSmart	$	14,569		$	10,150
Net earnings (loss) available to common stockholders from discontinued operations	$	7		$	9
Basic weighted average shares outstanding		29,356			29,105
Add dilutive effect of stock options (two-class method)		6			58
Diluted average shares outstanding		29,362			29,163
Basic income per share from continuing operations attributable to PriceSmart	$	0.50		$	0.35
Diluted income per share from continuing operations attributable to PriceSmart	$	0.50		$	0.35
Basic income (loss) per share from discontinued operations	$	0.00		$	0.00
Diluted income (loss) per share from discontinued operations	$	0.00		$	0.00

15

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 6 – EQUITY

Dividends

No dividends were declared by the Company’s Board of Directors during the first three months of fiscal year 2011.

On January 27, 2010, the Company’s Board of Directors declared a cash dividend in the total amount of $0.50 per share, of which $0.25 per share was paid on February 26, 2010 to stockholders of record as of the close of business on February 15, 2010 and $0.25 per share was paid on August 31, 2010 to stockholders of record as of the close of business on August 13, 2010.

On January 29, 2009, the Company’s Board of Directors declared a cash dividend in the total amount of $0.50 per share, of which $0.25 per share was paid on February 27, 2009 to stockholders of record as of the close of business on February 13, 2009 and $0.25 per share was paid on August 31, 2009 to stockholders of record as of the close of business on August 14, 2009.

The Company anticipates the ongoing payment of semi-annual dividends in subsequent periods, although the actual declaration of future dividends, the amount of such dividends, and the establishment of record and payment dates is subject to final determination by the Board of Directors at its discretion, after its review of the Company’s financial performance and anticipated capital requirements.

Stockholder Contribution

No stockholder contributions were recorded for the first three months of fiscal years 2011 and 2010.

 In December 2009, Robert E. Price, the Company’s Chairman of the Board, contributed approximately $396,000 in capital to the Company to fund a special holiday bonus to PriceSmart’s non-management employees in memory of the Company’s founder, Sol Price.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss reported on the Company’s consolidated balance sheets consists of foreign currency translation adjustments of approximately $16.3 million and $16.2 million and unrealized losses on interest rate swaps (net of tax) of approximately $526,000 and $576,000 as of November 30, 2010 and August 31, 2010, respectively.  The unfavorable translation adjustments during the first three months of fiscal year 2011 of approximately $198,000 were primarily due to weaker foreign currencies. The $50,000 decrease in unrealized losses was mainly due to the change in the fair value of the interest rate swaps from fiscal year 2010 to November 30, 2010. The favorable translation adjustments of approximately $670,000 during fiscal year 2010 were due to a weaker U.S. dollar.

Retained Earnings Not Available for Distribution

As of November 30, 2010 and August 31, 2010, the accumulated deficit included retained earnings designated as legal reserves of approximately $3.5 million and $3.2 million, respectively, at various subsidiaries, which cannot be distributed as dividends to PriceSmart, Inc. according to applicable statutory regulations. 

16

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7 – STOCK OPTION AND EQUITY PARTICIPATION PLANS

In August 1997, the Company adopted the 1997 Stock Option Plan of PriceSmart, Inc. (the “1997 Plan”) for the benefit of its eligible employees, consultants and independent directors. Under the 1997 Plan, 700,000 shares of the Company's common stock are authorized for issuance.  The Compensation Committee of the Board of Directors administers the 1997 Plan with respect to options granted to employees or consultants of the Company, and the full Board of Directors administers the Plan with respect to director options. Options issued under the 1997 Plan typically vest over five years and expire in six years.

In July 1998, the Company adopted the 1998 Equity Participation Plan of PriceSmart, Inc. (the “1998 Plan”) for the benefit of its eligible employees, consultants and independent directors. The 1998 Plan authorizes 700,000 shares of the Company's common stock for issuance. Options issued under the 1998 Plan typically vest over five years and expire in six years. The 1998 Plan also allows restricted stock awards and restricted stock units, which typically vest over five years.  

In November 2001, the Company adopted the 2001 Equity Participation Plan of PriceSmart, Inc. (the “2001 Plan”) for the benefit of its eligible employees, consultants and independent directors. The 2001 Plan initially authorized 350,000 shares of the Company’s common stock for issuance. On April 17, 2008 the Board of Directors approved an amendment to the 2001 Plan to authorize the award of restricted stock units to independent directors, which was approved at the Company’s annual meeting of stockholders in January 2009. The Board also awarded restricted stock units to the independent directors which vest at the rate of 20% per year commencing on March 29, 2008, that was approved at the Company’s annual meeting of stockholders in January 2009. On Janua ry 28, 2009, the stockholders of the Company approved an amendment to the 2001 equity participation plan expanding the eligibility provisions under the plan to permit the award of restricted stock units to non-employee directors and authorizing an increase to the number of shares of common stock reserved for issuance from 350,000 to 400,000. Options issued under the 2001 Plan typically vest over five years and expire in six years. The 2001 Plan also allows restricted stock awards and restricted stock units, which typically vest over five years.

In November 2002, the Company adopted the 2002 Equity Participation Plan of PriceSmart, Inc. (the “2002 Plan”) for the benefit of its eligible employees, consultants and independent directors. The 2002 Plan initially authorized 250,000 shares of the Company’s common stock for issuance. At the 2006 Annual Meeting, the stockholders of the Company approved a proposal to amend the 2002 Equity Participation Plan of PriceSmart, Inc. to increase the number of shares of Common Stock reserved for issuance under the 2002 Plan from 250,000 to 750,000. On January 28, 2009, the stockholders of the Company approved an amendment to the 2002 equity participation plan increasing the number of shares of common stock reserved for issuance from 750,000 to 1,250,000. Options issued under the 2002 Plan typically vest over five years and expire in six years. The 2002 Plan also allows restricted stock awards and restricted stock units, which typically vest over five years.

As of November 30, 2010 and August 31, 2010, an aggregate of 497,539 shares and 493,539 shares, respectively, were available for future grants under all of the Company’s stock option and equity incentive plans.

The three types of equity awards offered by the Company are stock options (“options”), restricted stock awards (“RSA”) and restricted stock units (“RSU”).  The cost of these awards is the respective estimated fair value at the grant date.  Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model.  Compensation related to RSAs and RSUs is based on using the closing stock price from the day prior to the grant date with the application of an estimated forfeiture rate.  The Company recognizes the compensation cost related to these awards over the requisite service period of five years, graded ratably at the rate of 20% per year over the five-year period.  The Company utilizes “modified grant-date accoun ting” for true-ups, due to actual forfeitures, at the vesting dates.

17

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the components of the stock-based compensation expense for first three months of fiscal years 2011 and 2010 (in thousands), which are included in general and administrative expense and warehouse club operations in the consolidated statements of income:

	Three Months Ended
	November 30,
	2010		2009
Options granted to directors	$	13	$	10
Restricted stock awards		897		744
Restricted stock units		22		16
Stock-based compensation expense	$	932	$	770

The following tables summarize stock options outstanding and stock options activity relating to the 1997 Plan, 1998 Plan, 2001 Plan and the 2002 Plan as of November 30, 2010 and 2009 as follows:

	Shares			Weighted Average Exercise Price
Shares subject to outstanding options at August 31, 2010		35,200		$	20.99
Granted		—			—
Exercised		(1,000	)		7.63
Forfeited or expired		(4,000	)		34.33
Shares subject to outstanding options at November 30, 2010		30,200		$	19.67

	Shares			Weighted Average Exercise Price
Shares subject to outstanding options at August 31, 2009		179,998		$	10.02
Granted		—			—
Exercised		(59,150	)		6.20
Forfeited or expired		—			—
Shares subject to outstanding options at November 30, 2009		120,848		$	11.89

The following table summarizes information about stock options outstanding and options exercisable as of November 30, 2010:

Range of Exercise Prices		Outstanding as of November 30, 2010		Weighted-Average Remaining Contractual Life (in years)		Weighted-Average Exercise Price on  Options Outstanding		Options Exercisable as of November 30, 2010		Weighted-Average Exercise Price on Options Exercisable as of November 30, 2010
$	8.18 – $15.66		6,200		1.80	$	13.01		4,000	$	12.67
	15.66 – 20.01		14,000		4.10		17.98		3,400		16.57
	20.02 – 32.13		10,000		2.31		26.16		5,800		28.01
$	8.18 – $32.13		30,200		3.03	$	19.67		13,200	$	20.42

18

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The aggregate intrinsic value and weighted average remaining contractual term of options exercisable at November 30, 2010 was approximately $129,000 and 1.9 years, respectively.  The aggregate intrinsic value and weighted average remaining contractual term of options outstanding at November 30, 2010 was approximately $309,000 and 3.0 years, respectively.

Cash proceeds from stock options exercised and the intrinsic value related to total stock options exercised during the three months ended November 30, 2010 and 2009 are summarized in the following table (in thousands):

	Three Months Ended November 30,
	2010		2009
Proceeds from stock options exercised	$	7	$	346
Intrinsic value of stock options exercised	$	23	$	768

The Company began issuing restricted stock awards in fiscal year 2006 and restricted stock units in fiscal year 2008. The restricted stock awards and units vest over a five year period and are forfeited if the employee or non-employee Director leaves the Company before the vesting period is completed. Restricted stock awards and units activity for the three months ended November, 2010 and 2009 was as follows:

	Three Months Ended November 30,
	2010		2009
Grants outstanding at beginning of period		558,821		618,250
Granted		—		14,800
Forfeited		—		(3,274	)
Vested		—		(112	)
Grants outstanding at end of period		558,821		629,664

The following table summarizes the weighted average grant date fair value for restricted stock awards and units for first three months of fiscal years 2011 and 2010:

	Three Months Ended November 30,
Weighted Average Grant Date Fair Value	2010		2009
Restricted stock awards and units granted	$	—	$	18.74
Restricted stock awards and units vested	$	—	$	17.75
Restricted stock awards and units forfeited	$	—	$	19.00

The total fair market value of restricted stock awards and units vested during the three months ended November 30, 2009 was approximately $2,000.

The remaining unrecognized compensation cost related to unvested options, restricted stock awards and units at November 30, 2010 and 2009 was approximately $7.7 million and $7.2 million, respectively, and the weighted-average period of time over which this cost will be recognized is 2.9 years and 3.0 years, respectively.  The excess tax benefit (deficiency) on stock-based compensation related to options, restricted stock awards and units for the three months ended November 30, 2010 and 2009 was approximately ($1,000) and $62,000, respectively.

During the three months ended November 30, 2009 the Company repurchased 34 shares of common stock from employees for approximately $1,000 based on the stock price at the date of repurchase to cover the employees’ minimum statutory tax withholding requirements related to the vesting of restricted stock awards.  The Company expects to continue this practice going forward.  The Company did not repurchase shares of common stock from employees during the three months ended November 30, 2010.  

19

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 8 – LEASES

The Company is committed under non-cancelable operating leases for the rental of facilities and land.  As of November 30, 2010, the Company’s warehouse clubs occupied a total of approximately 1,850,805 square feet of which 420,647 square feet were on leased property. The following is a summary of the warehouse clubs and Company facilities located on leased property:

			Approximate			Remaining
			Square		Current Lease	Option(s)
Location (1)	Facility Type	Date Opened	Footage		Expiration Date	to Extend
Via Brazil, Panama	Warehouse Club	December 4, 1997		68,696	October 31, 2026	10 years
Miraflores, Guatemala	Warehouse Club	April 8, 1999		66,059	December 31, 2020	5 years
Pradera, Guatemala	Warehouse Club	May 29, 2001		48,438	May 28, 2021	none
Tegucigalpa, Honduras	Warehouse Club	May 31, 2000		64,735	May 30, 2020	none
Oranjestad, Aruba	Warehouse Club	March 23, 2001		64,627	March 23, 2021	10 years
Port of Spain, Trinidad	Warehouse Club	December 5, 2001		54,046	July 5, 2031	none
St. Thomas, U.S.V.I.	Warehouse Club	May 4, 2001		54,046	February 28, 2020	10 years
Barbados	Storage Facility	May 5, 2006		4,800	May 31, 2011	1 year
Chaguanas, Trinidad	Employee Parking	May 1, 2009		4,944	April 30, 2024	none
Chaguanas, Trinidad	Container Parking	April 1, 2010		65,340	March 31, 2015	none
Santo Domingo, Dominican Republic	Central Offices	June 1, 2010		2,002	May 31, 2015	1 year
Bogota, Colombia	Central Offices	October 21, 2010		4,100	December 20, 2012	none
San Diego, CA(2)	Corporate Headquarters	April 1, 2004		35,000	August 31, 2015	5 years
Miami, FL(3)	Distribution Facility	March 1, 2008		274,652	July 31, 2021	10 years
Miami, FL	Distribution Facility	September 1, 2001		36,575	June 30, 2011	none

(1)	The former club located in Guam is not included; this warehouse club was closed in fiscal year 2004. The land and building are currently subleased to a third-party.
(2)	The Company negotiated a lease extension commencing on April 1, 2010 for a total of 65 months ending on August 31, 2015 for its corporate headquarters site.
(3)	The Company renegotiated its existing lease for its primary distribution center in Miami, extending the term and adding approximately 74,000 square feet of warehouse space adjacent to this facility following related construction activities expected to be completed in the second half of fiscal 2011.

The following table summarizes the components of rental expense charged for operating leases of open locations for the three months ended November 30, 2010 and 2009 (in thousands):  

	Three Months Ended
	November 30,
	2010		2009
Minimum rental payments	$	1,647	$	1,701
Deferred rent accruals		253		110
Total straight line rent expense		1,900		1,811
Contingent rental payments		450		356
Common maintenance area expense		179		197
Rental expense	$	2,529	$	2,364

20

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum lease commitments for facilities under these leases with an initial term in excess of one year are as follows (in thousands):

Periods Ended November 30,	Open Locations(1)
2011	$	6,454
2012		6,685
2013		6,718
2014		6,790
2015		6,674
Thereafter		47,966
Total (2)	$	81,287

(1)	Operating lease obligations have been reduced by approximately $428,000 to reflect sub-lease income.
(2)	The total excludes payments for the discontinued operations in Guam.  The projected minimum payments excluded for Guam are approximately $741,000; however, sublease income for this location is projected to be approximately $890,000, yielding no net projected obligation.

Certain obligations under leasing arrangements are collateralized by the underlying asset being leased.

The following table summarizes the components of rental income recorded for operating leases for the three months ended November 30, 2010 and 2009 (in thousands): 

	Three Months Ended
	November 30,
	2010		2009
Minimum rental payments	$	724	$	590
Deferred rent accruals		20		16
Total straight line rent income		744		606
Contingent rental payments		19		25
Common maintenance area income		14		13
Rental income	$	777	$	644

The Company entered into leases as landlord for rental of land and/or building space for properties it owns. The following is a schedule of future minimum rental income on non-cancelable operating leases with an initial term in excess of one year from owned property as of November 30, 2010 (in thousands):

Periods ended November 30,	Amount
2011	$	2,354
2012		1,843
2013		1,717
2014		1,576
2015		1,497
Thereafter		8,314
Total	$	17,301

21

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 9 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company and its subsidiaries are subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company evaluates such matters on a case by case basis, and vigorously contests any such legal proceedings or claims which the Company believes are without merit.

The Company is required to file federal and state tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations the Company used to calculate its tax liability and therefore require the Company to pay additional taxes.

The Company accrues an amount for its estimate of probable additional income tax liability.  In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority.  An uncertain income tax position will not be recognized if it has less than 50% likelihood of being sustained (See Note 2 - Summary of Significant Accounting Policies - Income Taxes). 

In evaluating the exposure associated with various non-income tax filing positions, the Company accrues charges for probable and estimable exposures.  As of November 30, 2010 and August 31, 2010, the Company had recorded within other accrued expenses a total of $2.1 million, respectively for both periods, for various non-income tax related tax contingencies.

While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of litigation, and in the estimation processes of more likely than not additional income tax liability in accounting for uncertain tax positions and in evaluating the probable additional tax associated with various non-income tax filing positions.  As such, the Company is unable to make a reasonable estimate of the sensitivity to change of estimates affecting its recorded liabilities.  As additional information becomes available, the Company assesses the potential liability and revises its estimates as appropriate.  While the Company believes the recorded liabilities are adequate, there are inherent limitations in the estimation process whereby actual losses may exceed estimated losse s.

See Note 13 - Unconsolidated Affiliates for a description of additional capital contributions that may be required in connection with joint ventures to develop commercial centers adjacent to PriceSmart warehouse clubs in Panama and Costa Rica.

The Company contracts for distribution center services in Mexico.  The contract for this distribution center's services expire on December 31, 2011.  Future minimum service commitments related to this contract for the periods less than one year and for one to three years is approximately $125,000 and $10,000, respectively.

During fiscal year 2010, the Company was made aware of a potential permitting issue involving the Alajuela warehouse club, located in Costa Rica.  The construction of that club and its related facilities included the construction of a water retention basin ("WRB") on property owned by Hacienda Santa Anita(1) ("HSA").  This WRB is used to slow the flow of water runoff from property owned by the Company (the Alajuela warehouse club), property owned by the joint venture Plaza Price Alajuela ("PPA"), and property owned by HSA, as it is discharged into the municipal drainage system. After certain administrative and court proceedings related to the original construction permit for the club and its facilities, the Company was advised by the Municipality of Alajuela ("MA") that the MA required the construction and proper operation of a set of complementary improvements to the WRB.  These improvements consist of digging a network of dirt canals on HSA property to capture and conduct surface waters from these properties to the WRB.  HSA required the Company to sign an indemnification agreement before this work was performed, whereby the Company guarantees that it will purchase at fair market value the land held by HSA in the event HSA is not allowed to develop that land due to the construction of the canals.  The Company has estimated the current fair value of the land to be approximately $4.1 million.  Separately, the Costa Rican Health Ministry (“HM”) has recently required that the Company either close the WRB, or undertake an extensive set of improvements to the WRB which the Company believe s to be impractical, expensive and unnecessary. As a result, the Company is attempting to meet with appropriate representatives of the HM. If the HM is unwilling to retract its current requirements, the Company may have to undertake various other efforts to redirect the flow of water, the total cost of which is currently undetermined. The Company has not recorded a liability for any of these matters as of November 30, 2010 or August 31, 2010.

(1) Hacienda Santa Anita is a locally based business related to J.B Enterprises (a Panamanian business entity). On September 29, 2008, the Company entered into a joint venture with J.B. Enterprises, known as Plaza Price Alajuela, to jointly own and operate a commercial retail center adjacent to the Alajuela warehouse club, with each owning a 50% interest in the joint venture.

22

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 NOTE 10 – SHORT-TERM BORROWINGS AND LONG-TERM DEBT

As of November 30, 2010 and August 31, 2010, the Company had bank credit agreements and lines of credit for $28.0 million and $27.9 million, respectively, which are secured by certain assets of the Company and its subsidiaries and are guaranteed by the Company. Each of the facilities expire during the year and is normally renewed.  As of November 30, 2010 and August 31, 2010, borrowings, lines and letters of credit totaling approximately $4.2 million and $4.0 million, respectively, were outstanding under these facilities, leaving approximately $23.8 million and $23.9 million, respectively, available for borrowings. Of these outstanding amounts as of November 30, 2010 and August 31, 2010, the Company, together with its subsidiaries, had $4.0 million and $3.6 million, respectively, outstanding in short-term borrowing s, at weighted-average interest rates of 8.7% and 8.8%, respectively.

Long-term debt consists of the following (in thousands):

	November 30,		August 31,
	2010		2010
Note due July 2017, 9.0% fixed rate(5)	$	5,697	$	5,858
Note due November 2017, (six-month LIBOR + 1.5%) 2.12% current Rate(3) (5) (6)		3,150		3,375
Note due November 2017, (BB Prime rate – 2%) 5.85% current rate		—		3,334
Note due September 2014, 5.5% fixed rate(1) (5) (6)		7,067		7,267
Note due August 2018, (1 year LIBOR + 2.75%) 3.62% current rate(3) (5)		6,975		7,200
Note due February 2016, 6.71% fixed rate(1) (5) (6)		7,837		8,075
Note due August 2014, 5.5% fixed rate(1) (5) (6)		8,750		9,000
Note due January 2015, 5.5%  fixed rate (1) (5) (6)		5,500		5,650
Note due March 2015, (Variable interest of 11.25%, to be periodically reviewed)11.25% current rate(2)		5,211		5,511
Note due August 2015, (Yr-1 5.0% Fixed rate, Yrs 2-3 5.5% Fixed rate and Yrs 4-5 Prime rate + 2.5%) 5.0% current rate(1) (5)		4,875		5,000
Note due November 2015, (six-month LIBOR + 2.4%) 2.85% current rate(4)		8,000		—
Note due September 2011, ($475,000 three year, zero interest, discounted loan) (7)(8)		455		450
Total long-term debt		63,517		60,720
Less: current portion(8)		7,734		7,715
Long-term debt, net of current portion	$	55,783	$	53,005

(1)	Loan contains a balloon payment due at the end of the loan term.
(2)	As collateral for this loan, the Company’s Honduras subsidiary entered into an agreement with Banco Del Pais to open and maintain a certificate of deposit for $6.0 million with an initial interest rate of 3.88%.  The certificate of deposit is automatically renewable by Banco Del Pais on an annual basis for the net amortized outstanding balance on the loan.
(3)	The Company has entered into an interest rate swap agreement to eliminate the changes (variability) of the interest payments on these loans.  (See Note 11 - Interest Rate Swaps).
(4)	On November 1, 2010, the Company’s Colombia subsidiary entered into a loan agreement with Citibank, N.A. in New York.  The agreement establishes a credit facility for $16.0 million to be disbursed in two tranches of $8.0 million each.  The interest rate is set at the 6 month LIBOR rate plus 2.4%.  The loan term is five years with interest only payments and a balloon payment at maturity.  The credit facility is renewable for an additional five year period at PriceSmart, Colombia's option.  As collateral for this credit facility, the Company entered into an agreement with Citibank, N.A. to open and maintain a certificate of deposit equal to the amount outstanding on the loan with an initial interest rate of 6 month LIBOR plus 1.66%.
(5)	As of November 30, 2010 and August 31, 2010, approximately $49.9 million and $54.8 million, respectively, of the Company's long-term debt was collateralized by certain land, buildings, fixtures, equipment and shares of each respective subsidiary. The carrying amount of the non-cash assets assigned as collateral for long-term debt was $89.8 million and $87.4 million as of November 30, 2010 and August 31, 2010, respectively.
(6)	As of November 30, 2010 and August 31, 2010, approximately $32.3 million and $36.7 million, respectively, relate to loans held by the Company’s subsidiaries in Trinidad, Barbados, Panama, El Salvador and Honduras that require these subsidiaries to comply with certain annual or quarterly financial covenants which include debt service and leverage ratios.  As of November 30, 2010 and August 31, 2010, the Company was in compliance with respect to these covenants.
(7)	The note due on September 2011 was reclassified to long-term debt, current portion for the reporting period ended on November 30, 2010.
(8)	As of November 30, 2010 and August 31, 2010, approximately $455,000 and $450,000, respectively, of the Company’s long-term debt, current portion was collateralized by shares that the Company owns in the joint venture, Newco2 (see Note 13 - Unconsolidated Affiliates).

23

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Annual maturities of long-term debt are as follows (in thousands):

Years Ended November 30,	Amount
2011	$	7,734
2012		7,279
2013		7,279
2014		15,896
2015		17,552
Thereafter		7,777
Total	$	63,517

NOTE 11 – INTEREST RATE SWAPS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by the Company using derivative instruments is interest rate risk.  To manage interest rate exposure, the Company entered into hedge transactions (interest rate swaps) using derivative financial instruments.  The objective of entering into interest rate swaps is to eliminate the variability of cash flows in the LIBOR interest payments associated with variable-rate loans over the life of the loans.  As changes in interest rates impact the future cash flow of interest payments, the hedges provide a synthetic offset to interest rate movements.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

In the first quarter of fiscal 2009, the Company’s Trinidad subsidiary entered into an interest rate swap agreement with the Royal Bank of Trinidad & Tobago LTD ("RBTT") for a notional amount of $8.9 million. This swap agreement was entered into in order to fix the interest rate of a $9.0 million loan entered into in fiscal year 2008. The loan has a variable interest rate of one year LIBOR plus a margin of 2.75%. Under the swap agreement, the Company will pay a fixed rate of 7.05% for a term of approximately five years (until September 26, 2013). The notional amount of $8.9 million is scheduled to amortize to $4.5 million over the term of the swap. The LIBOR reset dates for the $9.0 million loan and the notional amount of $8.9 million on the interest rate swap are effective annually on August 26. As the interest rate swap is fixed at 7.05%, the difference between the actual floating rate (one year LIBOR plus margin of 2.75%) and the fixed rate of 7.05% applied against the notional amount of the swap is paid to or received from RBTT monthly.

In the second quarter of fiscal year 2008, the Company’s Barbados subsidiary entered into an interest rate swap agreement with Citibank, N.A. for a notional amount of $4.5 million. This swap agreement was entered into in order to fix the interest rate on a $4.5 million loan obtained in U.S. dollars in fiscal year 2008. The loan has a variable interest rate of six-month LIBOR plus a margin of 1.5%. Under the swap agreement, the Company will pay a fixed rate of 5.22% for a term of approximately five years (until November 14, 2012). The notional amount of $4.5 million is scheduled to amortize to $2.25 million over the term of the swap. The LIBOR reset dates for the $4.5 million loan and the notional amount of $4.5 million on the interest rate swap are effective semi-annually on November 15 and May 15. As the interest rate swap is fixed at 5.22%, the difference between the actual floating rate (six month LIBOR plus a margin of 1.5%) and the fixed rate of 5.22% applied against the notional amount of the swap is paid to or received from Citibank, N.A. semi-annually.

For the three month periods ended November 30, 2010 and 2009, the Company included the gain or loss on the hedged items (that is, variable-rate borrowings) in the same line item—interest expense—as the offsetting gain or loss on the related interest rate swaps as follows (in thousands):

Income Statement Classification		Interest expense on Borrowings	Loss on Swaps		Interest expense
Interest expense for the three months ended November 30, 2010	$	75	$	96	$	171
Interest expense for the three months ended November 30, 2009	$	113	$	80	$	193

The total notional amount of the Company’s pay-fixed/receive-variable interest rate swaps was as follows (in thousands):

Floating Rate Payer (Swap Counterparty)		Notional Amount as of November 30, 2010	Notional Amount as of August 31, 2010
RBTT	$	6,975	$	7,200
Citibank N.A.	$	3,150	$	3,375
Total	$	10,125	$	10,575

24

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company measures the fair value for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis or on a nonrecurring basis during the reporting period as further described within Note 2.  The debt fair value is measured as the net present value of the debt cash payments.  This requires estimating the payments and the timing of the payments and taking the discounted cash flow of these payments.  The amount and timing of the cash flows are often determined by the debt instrument assuming no defaults.  The discount rate used to calculate the net present value of the debt is the current risk-free rate plus the risk premium adjustment reflecting the credit rating.  The Company considered the effect of its credit ri sk (credit standing) on the fair value of the liability in all periods in which the liability was measured at fair value.

The following table summarizes the fair value of derivative instruments (in thousands):

	Liability Derivatives
	November 30, 2010			August 31, 2010
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest Rate Swaps(1)	Other Accrued Expenses	$	702	Other Accrued Expenses	$	767
Total derivatives designated as hedging instruments(2)		$	702		$	767

(1)	The effective portion of the interest rate swaps was recorded as a loss to accumulated other comprehensive loss for $526,000 and $576,000, net of tax, as of November 30, 2010, and August 31, 2010, respectively.
(2)	All derivatives were designated as hedging instruments.

For the respective periods, there were no amounts recorded for gain or (loss) on interest rate swaps recognized on the consolidated statements of income deemed to be ineffective. The Company recognizes the fair value of interest rate swaps in accumulated other comprehensive loss as they are cash flow hedges.

NOTE 12 – ACQUISITION OF NONCONTROLLING INTEREST

In May 2010, the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary for $3.8 million.  As of the purchase date, the Company had recorded approximately $886,000 of noncontrolling interest related to the 5% noncontrolling interest.  The Company recorded the change in the ownership interest as an equity transaction, adjusting additional paid-in capital for approximately $2.9 million (the difference between the fair value of consideration paid less the book value of the noncontrolling interest).  The Company’s ownership percentage for all consolidated subsidiaries is now 100%, with no recorded noncontrolling interests transactions or acquisition activity related to the three month period ended November 30, 2010.  For the three month period ended November 30, 2009, the Company reported no purchase activity of noncontrolling interests.

NOTE 13 – UNCONSOLIDATED AFFILIATES

The Company determines whether any of the joint ventures in which it has made investments is a Variable Interest Entity (“VIE”) at the start of each new venture and if a reconsideration event has occurred.  At this time the Company also considers whether it must consolidate a VIE and/or disclose information about its involvement in a VIE.  A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) that will absorb a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both. A reporting entity must consider the rights and obligations conveyed by its variable interests and the relationship of its variable interests with variable interests held by other parties to determine whether its variable interests will absorb a majority of a VIE's expected losses, receive a majority of the VIE's expected residual returns, or both.  The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE.  Due to the initial nature of the joint ventures (GolfPark Plaza, Price Plaza Alajuela and Newco2) and the continued commitments for additional financing, the Company determined these joint ventures are VIEs.  Since all rights and obligations are equally absorbed by both parties within each joint venture, the Company has determined that it is not the primary beneficiary of the VIEs and, therefore, has accounted for these entities under the equity method.

Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment. 

On September 24, 2008, the Company entered into an agreement with an entity controlled by local Panamanian businessmen, Fundacion Tempus Fugit S.A. ("FIDAU"), to jointly own and operate a commercial retail center adjacent to its new PriceSmart warehouse club, with the Company and FIDAU each owning a 50% interest in the entity, GolfPark Plaza, S.A.  The Company purchased a 50% interest in GolfPark Plaza for approximately $4.6 million. On September 24, 2008, GolfPark Plaza acquired 412,594 square feet of real estate for the construction of a retail center. During fiscal year 2009 and fiscal year 2010, the Company made additional capital contributions of approximately $50,000 and $433,000, respectively.  No additional capital contributions were made during the three months ended November 30, 2010.  As o f November 30, 2010 and August 31, 2010, the Company’s commitment to make future additional capital contributions was approximately $2.0 million. However, the parties intend to seek alternate financing for the project, which would reduce the amount of additional capital each party would be required to provide.  The parties may mutually agree on changes to the project, which could increase or decrease the amount of capital each party is required to contribute.

25

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On September 29, 2008, the Company entered into an agreement with an entity controlled by local Costa Rican businessmen, JB Enterprises ("JBE"), to jointly own and operate a commercial retail center adjacent to the anticipated new PriceSmart warehouse club in Alajuela, Costa Rica, with the Company and JBE each owning a 50% interest in the joint venture, Price Plaza Alajuela, S.A.  ("PPA").  Also, on September 29, 2008, PPA acquired 232,244 square feet of real estate for the construction of a retail center. The Company recorded an initial investment in PPA of approximately $2.2 million.  As of August 31, 2010, the Company made additional capital contributions of approximately $377,000.  No additional capital contributions were made during the three months ended November 30, 2010.  As of November 30, 2010 and August 31, 2010, the Company’s commitment to make future additional capital contributions was approximately $1.6 million.  However, the parties intend to seek alternate financing for the project, which would reduce the amount of additional capital each party would be required to provide.  In addition, the parties may mutually agree on changes to the project, which may also reduce the amount of capital each party is required to contribute.   

On September 29, 2008, the Company entered into a second agreement with an entity controlled by local Costa Rican businessmen, Prico Enterprises ("Prico"), to jointly own property adjacent to the anticipated new PriceSmart warehouse club in Alajuela and the retail center to be owned and operated by PPA, with the Company and Prico each owning a 50% interest in the joint venture, Newco2.  Also, on September 29, 2008, 53,777 square feet of real estate were acquired by this entity.  The Company recorded an initial investment in the joint venture of approximately $424,000. The Company obtained a three year, zero interest loan from Prico to finance the acquisition of its noncontrolling interest for approximately $475,000. The Company recorded the discounted present value of this loan of approxima tely $409,000 as part of its original investment in the joint venture. The interest on the loan is amortized monthly, with the interest charged to interest expense and the resulting liability credited to the loan payable balance.  The loan balance as of November 30, 2010 and August 31, 2010 was approximately $455,000 and $450,000, respectively.  The Company has reflected this amount as long-term debt, current portion within its consolidated balance sheet as of November 30, 2010 and as long-term debt, net of current portion, as of August 31, 2010.  As a result of the loan, the shares of the Company are held within a trust, established as part of the loan agreement with Prico.  As of November 30, 2010, there are no commitments to make additional capital contributions to this joint venture.

The summarized financial information of the unconsolidated affiliates is as follows (in thousands): 

	November 30,		August 31,
	2010		2010
Current assets	$	416	$	404
Noncurrent assets		6,589		6,608
Current liabilities		25		27
Noncurrent liabilities		—		—

	Three Months Ended
	November 30,
	2010			2009
Net loss	$	(10	)	$	(4	)

The table below summarizes the Company’s interest in the VIEs and the Company’s maximum exposure to loss as a result of its involvement with the VIEs as of November 30, 2010 and August 31, 2010 (in thousands):

	November 30, 2010						August 31, 2010
Entity	Company’s Variable Interest in Entity		Company’s Maximum Exposure to Loss in Entity(2)				Company’s Variable Interest in Entity		Company’s Maximum Exposure to Loss in Entity(2)
GolfPark Plaza, S.A.	$	5,086	$	7,104		$	5,088	$	7,105
Price Plaza Alajuela, S.A.		2,534		4,179			2,537		4,183
Newco2		472		475	(1)		466		475	(1)
Total	$	8,092	$	11,758		$	8,091	$	11,763

(1)	The amount includes the imputed interest on the loan from Prico.
(2)	The maximum exposure is determined by adding the Company’s variable interest in the entity and any explicit or implicit arrangements that could require the Company to provide additional financial support.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 14 – RELATED-PARTY TRANSACTIONS

Use of Private Plane:  From time to time members of the Company’s management use private planes owned in part by La Jolla Aviation, Inc. to travel to business meetings in Latin America and the Caribbean.  La Jolla Aviation, Inc. is solely owned by The Robert and Allison Price Trust, and Robert Price is a Director and Officer of La Jolla Aviation, Inc.  Under the "original use agreement," if the passengers are solely Company personnel, the Company has reimbursed La Jolla Aviation, for a portion of the fixed management fee and additional expenses incurred by La Jolla Aviation, as a result of the hours flown, including direct charges associated with the use of the plane, landing fees, catering and international fees. If the passeng ers are not solely PriceSmart, Inc. personnel and if one or more of the passengers is a member of the Price Group (including Robert E. Price), the Company has reimbursed La Jolla Aviation for use of the aircraft based on the amounts the passengers would have paid if they had flown a commercial airline. The Company incurred expenses of approximately $3,000 for the three months ended November 30, 2010.  The Company did not incur any expenses for the three months ended November 30, 2009 for these services.

Relationship with Robert Price: In December 2009, Robert E. Price, the Company’s Chairman of the Board, contributed approximately $396,000 in capital to the Company to fund a special holiday bonus to PriceSmart’s non-management employees in memory of the Company’s founder, Sol Price.  For the three months ended November 30, 2010 and 2009, no contributions were made by Robert Price.

 Relationships with Edgar Zurcher: Edgar Zurcher was a director of the Company from November 2000 until February 2008.   Mr. Zurcher resigned from the Company’s board of directors on February 8, 2008.  On October 6, 2009, the Company’s Board of Directors resolved to elect Mr. Zurcher to the Board effective October 15, 2009 to fill the vacancy following the resignation of a member of the Board.  The Company has accordingly recorded and disclosed related-party expense or income related to the relationships with Edgar Zurcher for the three months ended November 30, 2010 and 2009.  Mr. Zurcher is a partner in a law firm that the Company utilizes in certain legal matters. The Company incurred approximately $20,000 and $14,000 in legal expenses with this firm for the three months ended November 30, 2010 and 2009, respectively.  Mr. Zurcher is also a director of a company that owns 40% of Payless ShoeSource Holdings, Ltd., which rents retail space from the Company. The Company has recorded approximately $314,000 and $318,000 in rental income for this space during the three months ended November 30, 2010 and 2009, respectively.  Additionally, Mr. Zurcher is a director of Molinos de Costa Rica Pasta.  The Company paid approximately $66,000 and $51,000 for products purchased from this entity during the three months ended November 30, 2010 and 2009, respectively.  Also, Mr. Zurcher is a director of Roma S.A. dba Roma Prince S.A. PriceSmart purchased products from this  entity for approximately $552,000 and $380,000 for the three months ended November 30, 2010 and 2009, respectively.

Relationship with Gonzalo Barrutieta and Grupo Gigante, S.A.B. de C.V. (“Gigante”):  Gigante owns approximately 1.7 million shares of common stock of the Company as of November 30, 2010.  Gonzalo Barrutieta who has served as a director of the Company since February 2008, was employed in several capacities with Gigante from 1994 to 2006, most recently as Director of Real Estate and New Business Development.  Since 1994, he has served as a member of the board of directors of Gigante.  Mr. Barrutieta is also a member of the Board of Directors of Office Depot Mexico that operates Office Depot Panama which rents retail space from the Company.  The Company has recorded approximately $61,000 and $60,000 in rental i ncome and common area maintenance charges for this space during the three months ended November 30, 2010 and 2009, respectively.

 Relationships with Price Charities: During the three months ended November 30, 2010 and 2009, the Company sold approximately $7,000 and $14,000, respectively, of supplies to Price Charities, a charitable group affiliated with Robert E. Price. The Company also participates in a donation program with Price Charities allowing its members to donate money at the sales register to “Aprender y Crecer” ("Learn and Grow").  The Company remits these collections on a quarterly basis to Price Charities. As of November 30, 2010 the liability for donations received was approximately $291,000.  The Company did not have a liability to Price Charities as of August 31, 2010.

Relationships with Price Plaza Alajuela PPA, S.A.: The Company incurred a loss of approximately $5,000 for advisory and construction service fees during the three months ended November 30, 2009 from Price Plaza Alajuela, S.A. (see Note 13 - Unconsolidated Affiliates).  The Company did not record any income during the three months ended November 30, 2010.  On October 7, 2010, the Company completed an adjustment to the property boundaries between property owned by the Company at its Alajuela, Costa Rica warehouse club and property owned by Price Plaza Alajuela.  The purpose of the adjustment to these boundaries is to adjust the land boundaries so that the land parcels owned by each entity can be utilized in the most economical means.  The ne t effect of the realignment was that the Company purchased an additional 195 square meters of land for approximately $38,000.

Relationships with GolfPark Plaza, S.A.: The Company did not record any income during the three months ended November 30, 2010 and 2009, respectively, for advisory and construction service fees from GolfPark Plaza, S.A. (see Note 13 - Unconsolidated Affiliates).

The Company believes that each of the related-party transactions described above was on terms that the Company could have obtained from unaffiliated third-parties.

27

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 15 – SEGMENTS

The Company and its subsidiaries are principally engaged in the international operation of membership shopping warehouse clubs that operate in 11 countries/territories that are located in Latin America and the Caribbean.  In addition, the Company operates distribution centers and corporate offices in the United States.  The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, used by management in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance.  The Company’s operating segments are the United States, Latin America and the Caribbean.  Segment amounts are presented after converting to U.S. dollars and consolidating eliminations.  Certain revenues and operating costs included in the United States segment have not been allocated, as it is impractical to do so.  

As of August 31, 2010 the Company changed the “Central America” operating segment to the “Latin America” operating segment to reflect the inclusion of Colombia within the general geographic area of the Company’s operations.

28

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	United States Operations				Latin American Operations			Caribbean Operations			Reconciling Items(1)			Total
Period Ended November 30, 2010
Revenues from external customers	$	1,424			$	239,803		$	144,845		$	—		$	386,072
Intersegment revenues		161,031				—			1,231			(162,262	)		—
Depreciation and amortization		(229	)			(2,288	)		(1,720	)		—			(4,237	)
Operating income		4,955				12,836			4,778			—			22,569
Interest income from external sources		(12	)			140			14			—			142
Interest income from intersegment sources		785				274			77			(1,136	)		—
Interest expense from external sources		(4	)			(775	)		(191	)		—			(970	)
Interest expense from intersegment sources		(13)				(310	)		(813	)		1,136			—
Income from continuing operations before taxes		5,711				12,122			3,858			—			21,691
Provision for income taxes		(1,900	)			(3,831	)		(1,114	)		—			(6,845	)
Net income attributable to PriceSmart		3,820				8,291			2,742			—			14,853
Assets of discontinued operations		924				—			—			—			924
Long-lived assets (other than deferred tax assets)		35,152				180,840			125,012			—			341,004
Goodwill		—				32,236			5,209			—			37,445
Identifiable assets		37,842				341,999			230,060			—			609,901
Period Ended November 30, 2009
Revenues from external customers	$	602			$	190,518		$	124,299		$	—		$	315,419
Intersegment revenues		128,859				—			811			(129,670	)		—
Depreciation and amortization		(276	)			(1,993	)		(1,367	)		—			(3,636	)
Operating income		5,480				7,345			3,410			—			16,235
Interest income from external sources		111				42			62			—			215
Interest income from intersegment sources		906				194			—			(1,100	)		—
Interest expense from external sources		(8	)			(464	)		(158	)		—			(630	)
Interest expense from intersegment sources		(20	)			(539	)		(541	)		1,100			—
Income from continuing operations before taxes		6,474				6,581			2,769			—			15,824
Provision for income taxes		(1,452	)			(2,899	)		(1,050	)		—			(5,401	)
Net income attributable to PriceSmart		5,032				3,679			1,666			—			10,377
Assets of discontinued operations		947				—			—			—			947
Long-lived assets (other than deferred tax assets)		27,235				161,343			98,105			—			286,683
Goodwill		—				32,284			5,131			—			37,415
Identifiable assets		34,096				299,422			183,739			—			517,257
Year Ended August 31, 2010
Revenues from external customers	$	4,199		$	856,994			$	534,698		$	—		$	1,395,891
Intersegment revenues		487,042			—				3,923			(490,965	)		—
Depreciation and amortization		(953	)		(8,341		)		(5,966	)		—			(15,260	)
Asset impairment and closure (costs) income		—			(12		)		(6	)		—			(18	)
Operating income		16,243			41,967				16,683			—			74,893
Interest income from external sources		135			306				112			—			553
Interest income from intersegment sources		3,378			1,057				417			(4,852	)		—
Interest expense from external sources		(28	)		(2,288		)		(407	)		—			(2,723	)
Interest expense from intersegment sources		(120	)		(1,900		)		(2,832	)		4,852			—
Income from continuing operations before taxes		19,607			38,760				13,719			—			72,086
Provision for income taxes		(6,742	)		(11,466		)		(4,579	)		—			(22,787	)
Net income attributable to PriceSmart		12,882			27,294				9,139			—			49,315
Assets of discontinued operations		692			—				—			—			692
Long-lived assets (other than deferred tax assets)		27,484			173,968				119,635			—			321,087
Goodwill		—			32,247				5,224			—			37,471
Identifiable assets		65,635			305,429				201,501			—			572,565
(1)   The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.

29

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 16 – SUBSEQUENT EVENTS

The Company has evaluated all events subsequent to the balance sheet date of November 30, 2010 through the date of issuance of these consolidated financial statements and has determined that there are no subsequent events that require disclosure.

30

PRICESMART, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q  contains forward-looking statements concerning the Company's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company's financial performance is dependent on international operations which exposes the Company to various risks; any failure by the Company to mana ge its widely dispersed operations could adversely affect its business; the Company faces significant competition; the Company may encounter difficulties in the shipment of, and risks inherent in the acquisition and importation of, merchandise to its warehouse clubs; the Company is exposed to weather and other natural disaster risks; declines in the economies of the countries in which the Company operates its warehouse clubs would harm its business; a few of the Company's stockholders own nearly 39% of the Company's voting stock, which may make it difficult to complete some corporate transactions without their support and may impede a change in control; the loss of key personnel could harm the Company's business; the Company is subject to volatility in foreign currency exchange; the Company faces the risk of exposure to product liability claims, a product recall and adverse publicity; a determination that the Company's long-lived or intangible assets have been impaired could adversely affect the Company's fu ture results of operations and financial position; although the Company takes steps to continuously review, enhance, and implement improvements to its internal controls, there may be material weaknesses or significant deficiencies that the Company has not yet identified; as well as the other risks detailed in the Company's U.S. Securities and Exchange Commission (“SEC”) reports, including the Company's Annual Report on Form 10-K filed for the fiscal year ended August 31, 2010 on November 9, 2010 pursuant to the Securities Exchange Act of 1934. See “Part II – Item 1A – Risk Factors.”

The following discussion and analysis compares the results of operations for the three month periods ended November 30, 2010 (fiscal year 2011) and 2009 (fiscal year 2010), and should be read in conjunction with the consolidated financial statements and the accompanying notes included herein.

PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Latin America and the Caribbean that sell high quality goods and services to its retail and wholesale members at low prices, while providing good wages and benefits to PriceSmart employees and a fair return to PriceSmart stockholders. The Company sells U.S. brand-name, private label, locally sourced and imported products to its small business and consumer members in a warehouse club format, providing high value to its members. By focusing on providing high value on quality merchandise in a low-cost operating environment, the Company seeks to grow sales volume and membership, which in turn will allow for further efficiencies and price reductions and ultimately improved value to its members. 

PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation as of November 30, 2010 and 2009, the number of warehouse clubs the Company expects to open in fiscal year 2011, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:

Country/Territory	Number of Warehouse Clubs in Operation (as of November 30, 2010)		Number of Warehouse Clubs in Operation (as of November 30, 2009)		Anticipated warehouse club openings in FY 2011	Ownership  (as of November 30, 2010)			Basis of Presentation
Colombia		—		—	1		100	%	Consolidated
Panama		4		4	—		100	%	Consolidated
Costa Rica		5		5	—		100	%	Consolidated
Dominican Republic		3		2	—		100	%	Consolidated
Guatemala		3		3	—		100	%	Consolidated
El Salvador		2		2	—		100	%	Consolidated
Honduras		2		2	—		100	%	Consolidated
Trinidad		4		3	—		100	%	Consolidated
Aruba		1		1	—		100	%	Consolidated
Barbados		1		1	—		100	%	Consolidated
U.S. Virgin Islands		1		1	—		100	%	Consolidated
Jamaica		1		1	—		100	%	Consolidated
Nicaragua		1		1	—		100	%	Consolidated
Totals		28		26	1

During fiscal year 2010, the Company acquired property in Panama and Trinidad.  The Company completed construction of and opened a new Panama warehouse club ("Brisas") in April 2010.  The Panama warehouse club, previously located at Los Pueblos was closed and relocated to this new site.  The Los Pueblos site is currently being leased with the lessee having an option to buy. The Company completed construction of and opened a new warehouse club in Trinidad ("San Fernando") in April 2010, bringing the number of warehouse clubs in Trinidad to four.

The Company completed construction of and opened a new warehouse club in Santo Domingo, Dominican Republic (“Arroyo Hondo”) on November 5, 2010.  In November 2010, the Company through its Colombian subsidiary acquired approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 12.1 billion Colombian Pesos (the equivalent of approximately $6.5 million United States Dollars as of the acquisition date).  The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011.

31

At the end of November 30, 2010, the total number of warehouse clubs in operation was 28 operating in 11 countries and one U.S. territory, in comparison to 26 warehouse clubs operating in 11 countries and one U.S. territory at the end of November 30, 2009. The average age of the 28 warehouse clubs in operation was 101 months as of the end of November 30, 2010 and the average age of the 26 warehouse clubs included in operation was 97 months as of November 30, 2009.

In addition to the warehouse clubs operated directly by the Company, there is one warehouse club in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a small royalty fee.

In general, the Company’s earnings improve and cash flows from operations increase as sales increase.  Although the Company’s cost of goods sold is largely variable with sales, a portion of the Company’s selling, general and administrative expenses rise relatively slowly in relation to sales increases.  Therefore, the Company prioritizes initiatives that it expects will have the greatest impact on increasing sales.  Looking forward to the next several quarters, the following items are likely to have an impact on business and the results of operations:

General Economic Factors

The economic slowdown in the U.S. and other major world economies had a negative effect on consumer spending in the countries where PriceSmart operates in the second half of fiscal year 2009 and continued through the first three months of fiscal year 2010.   Lower expatriate remittances, reduced U.S. demand for exports from Latin America (particularly affecting the assembly (“maquila”) export sector in Guatemala, Honduras and the Dominican Republic), and reduced tourism from the U.S. and Europe (particularly affecting Caribbean markets) contributed to a generally weak economic environment in many of the Company’s markets affecting consumer spending and buying patterns. Improving consumer spending became evident in the Company’s warehouse clubs in the second quarter of fiscal year 2010.   ;Those positive trends continued through to the remainder of fiscal year 2010 and have continued through the first three months of fiscal year 2011.  These include:

·    Sales of non-consumable merchandise continued to increase in the first quarter of fiscal year 2011 after declining through much of fiscal year 2009 and the first quarter of fiscal year 2010 when compared to the same quarter in the prior year.  The four most recent fiscal quarters (quarter 2, quarter 3 and quarter 4 of fiscal year 2010 and quarter 1 of fiscal year 2011) have seen a year over year increase in non-consumable merchandise sales of 8.5%, 16.4%, 27.0% and 21.8 % respectively.

·    The decline in the dollar value of the average transaction, which had been 3.2%, 4.8%, and 4.1% in the last two quarters of fiscal year 2009 and the first quarter of fiscal year 2010, respectively, declined only 0.6% in the second quarter of fiscal year 2010, and registered an increase of 4.3%, 5.6% and 3.7% in the third and fourth quarters of fiscal year 2010 and in the first quarter of fiscal year 2011, respectively, compared to the same quarters in the previous fiscal year.

·   Comparable warehouse club sales percentage growth has improved from the negative growth rate of 1.1%  recorded in September 2009 and 0.3% in October 2009.  The Company has experienced 13 consecutive months of positive comparable monthly warehouse club sales growth with November 2010 at 15.8%.

The Company believes that consumer spending has stabilized and may be increasing in some of its markets, particularly in Latin America, which has had a positive effect on sales in the most recent period and may have a continued positive effect on sales in the upcoming fiscal quarters.

Many PriceSmart markets are susceptible to foreign currency exchange rate volatility. Currency exchange rate changes either increase or decrease the cost of imported products and can have an effect on the reported sales of the consolidated company when local currency denominated sales are translated to U.S. dollars.  In addition, the Company revalues all U.S. dollar denominated liabilities within those markets that do not use the U.S. dollar as its functional currency.  These liabilities include, but are not limited to, the value of items shipped from the U.S. to the Company’s foreign markets.  Approximately 49% of the Company’s net warehouse sales are comprised of products imported into the markets where PriceSmart warehouse clubs are located. Products imported for sale in PriceSmart markets are purchased in U.S. dollars, but approximately 79% of the Company’s net warehouse sales are in foreign currencies. In general, local currencies in PriceSmart markets have declined relative to the dollar, but the Costa Rican colon, Jamaican dollar and Guatemalan quetzale appreciated relative to the U.S. dollar on a year over year basis through much of the second half of fiscal year 2010.  The Costa Rican colon and the Guatemalan quetzale continued to appreciate into the first quarter of fiscal 2011.  The Company adjusts prices on U.S. dollar goods on a periodic basis to maintain its target margins after taking into account changes in exchange rates.  As a result, declines in local currencies relative to the U.S. dollar effectively increase the cost to the Company’s members of imported products, while appreciation in local currencies makes imported products more affordable. The Company believes that the appreciation of the Costa Rican, Jamaican and Guatemalan cu rrencies has had a positive impact on the sales of imported products during the first quarter of fiscal year 2011. With respect to locally acquired merchandise sold in the Company’s warehouse clubs, which accounts for approximately 51% of net warehouse sales, the Company’s margins are not affected by changes in exchange rates and therefore the Company does not adjust prices of these products to address changes in exchange rates.  However, in the case of locally acquired merchandise, a decline in local currency rates relative to the U.S. dollar will decrease the reported year over year sales of the Company when expressed in U.S. dollars.  Conversely, a strengthening of local currency rates relative to the U.S. dollar will increase the reported year over year sales.  With respect to the revaluation of monetary assets and liabilities, the Company recognizes the revaluation (either positive or negative) as an element of net warehouse cost of goods sold and indicates the dollar value of that revaluation, net of reserves, in the discussion on warehouse gross margins.  The Company seeks to reduce U.S. dollar denominated liabilities by obtaining local currency loans from banks within certain markets where it is economical to do so and where the risk of devaluation or the level of U.S. dollar denominated liabilities is high.  For example, last fiscal year, the Company instituted a local currency denominated long term loan in Honduras ($6.0 million, U.S. dollar equivalent).  The Company also has local currency denominated long term loans in Guatemala and Barbados. The Company is not aware of any material trends or uncertainties regarding the currencies of any other markets that the Company expects will have a material impact on the Company or its operations in future periods.  However, there is no way to accurately forecast how currencies may trade in the future and, as a result the Company cannot accurately pr oject the impact of the change in rates on the Company’s future demand for imported products, reported sales, or financial results.

32

Recent and Future Management Actions

The Company has undertaken or is planning several expansions, reconfigurations and/or fixture upgrades of existing warehouse clubs.  During the first three months of fiscal year 2011, the Company completed the expansion of the overstock freezer in the Llorente, Costa Rica warehouse adding approximately 588 square feet of added freezer space, the expansion of the bakery in the Nicaragua warehouse club adding approximately 970 square feet and the expansion of the Santo Domingo, Dominican Republic central offices adding approximately 900 square feet.  During fiscal year 2010, expansions included the expansion of the warehouse clubs in Aruba and Port of Spain, Trinidad that were finalized in fiscal year 2010, adding approximately 9,000 and 900 square feet of sales floor space, respectively.  Also during fisca l year 2010, the Company completed the expansion of the receiving area within San Pedro Sula, Honduras, adding approximately 700 square feet of receiving space to the facility, and completed significant upgrades to fixtures within the Barbados warehouse club, including the completion of a new produce overstock cooler in the third quarter of fiscal year 2010.  

The Company has plans to expand, reconfigure, and/or upgrade clubs and/or fixtures in clubs in several more locations over the next 12 months.  Such plans include: expansion of the Barbados warehouse club sales floor space by approximately 10,000 square feet; expansion of the bakery in the Tegucigalpa, Honduras warehouse club by approximately 400 square feet; and remodeling the fresh foods area within the Port of Spain, Trinidad warehouse club.  The Company will invest approximately $2.2 million for these items and believes that these expansions, reconfigurations, and/or upgrades will provide for more selling space, increased capacity for stocking merchandise in its warehouse clubs and added administrative spaces.

During fiscal year 2010, the Company opened a free trade zone distribution center in Miami, Florida and closed the Panama distribution center for much of the merchandise which ships from Asia. Similar to the arrangement in the Panama distribution center, the Company will incur distribution charges on a per unit basis at the Miami free trade zone distribution center. This change resulted in the more efficient and cost effective movement of merchandise to the Company’s markets. The Company also entered into a lease amendment for its Miami frozen distribution center on August 31, 2009, providing for an additional 5,000 square feet of frozen and refrigerated space. The Company recently renegotiated its existing lease for its primary distribution center in Miami, adding approximately 74,000 square feet of warehous e space to this facility. The Company will invest approximately $3.5 million to upgrade and ready this warehouse space and projects that the construction activities related to these upgrades will be completed in the second half of fiscal year 2011.  The Company intends to utilize this area to consolidate its dry, frozen and refrigerated merchandise distribution facilities. This will allow the Company to more efficiently service the PriceSmart warehouse club locations and realize savings in distribution expenses by improving the flow of merchandise through the facility and reducing handling costs. The Company continues to evaluate its distribution processes to improve the efficiency and cost effectiveness of shipping merchandise from suppliers to the warehouse clubs.

The Company offers a co-branded credit card to PriceSmart members in Latin America in cooperation with a bank in the region, Credomatic.  During fiscal year 2009, the Company introduced the co-branded program in its Caribbean markets, except for Aruba, in cooperation with a bank in that region, Scotiabank.  The programs allow for savings in credit card processing fees when the co-branded card is used at the warehouse club as well as providing benefits to club members through the loyalty programs offered by the banks for using the card.   Working with Credomatic and Scotiabank, the Company seeks to increase the use of the co-branded cards in those markets.  In the most recent fiscal quarter, bank and credit card expenses improved two basis points as a percentage of sales compared to the same quar ter last year.

The Company has an on-going process to evaluate sites for additional PriceSmart locations.  Although a specific target for new warehouse club openings beyond fiscal year 2011 has not been set, management believes that there are opportunities to add locations in certain PriceSmart markets.  The Company opened a new warehouse club in Santo Domingo, Dominican Republic (“Arroyo Hondo”) on November 5, 2010.  In November 2010, the Company through its Colombian subsidiary acquired approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 12.1 billion Colombian Pesos (the equivalent of approximately $6.5 million United States Dollars as of the acquisition date).  The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011. The Company believes that Colombia could be a market for multiple PriceSmart warehouse clubs and is currently establishing a country headquarters in Bogota, including the leasing of office space, and has hired a Country Manager and is in the process of hiring associated buying and administrative staff.

Most PriceSmart real estate is owned rather than leased.  Real estate ownership provides a number of advantages as compared to leasing, including lower operating expenses, flexibility to expand, or otherwise enhance, PriceSmart buildings, long-term control over the use of the property and the residual value that the real estate may have in future years.  In the course of acquiring sites, the Company may have to purchase more land than is actually needed for the warehouse club operation.  As an example, the Company’s acquisition of the Alajuela site in Costa Rica included the purchase of land for the PriceSmart warehouse club and a joint venture with the seller on the balance of the property.  PriceSmart entered into a similar real estate tra nsaction with respect to its recently opened Brisas site in Panama City.   To the extent that the Company acquires property in excess of what is needed for a particular warehouse club, the Company generally plans to either sell or develop the excess property.  The excess land at Alajuela and Brisas is being held for development by the joint ventures.  A similar development strategy is being employed for the Company’s excess land at the new San Fernando, Trinidad and Arroyo Hondo, Dominican Republic locations where the properties are fully owned by PriceSmart. The profitable sale or development of real estate is highly dependent on real estate market conditions.  The Company believes that it will find suitable tenants or acquirers in the future for its other property development projects.

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Financial highlights for the first three months of fiscal year 2011 included:

· Net warehouse club sales increased 22.3% over the prior year, resulting from the opening of a new warehouse club in Costa Rica in April 2009 and the opening of a new club in Trinidad on April 30, 2010.  Comparable warehouse club sales (that is, sales in warehouse clubs that have been open for greater than 13 1/2 calendar months) for the 13 weeks ending December 5, 2010 grew 16.9%. 

· Membership income for the first three months of fiscal year 2011 increased 16.7% to $5.4 million as a result of a 1.2% increase in the average membership fee, resulting from changes in the type of membership accounts established, and a 12.8% increase in membership accounts from November 30, 2009 to November 30, 2010 due in part to continued strong renewal rates at 88%.

· Gross profits (net warehouse club sales less associated cost of goods sold) increased 26.8% over the prior year due primarily to increased warehouse sales, and gross margin as a percent of net warehouse sales increased 57 basis points resulting from reduced markdowns, improved shrink results, and end-cap income.

· Selling, general and administrative expenses were lower by 27 basis points as a percentage of sales compared to the same period last year, as warehouse sales growth outpaced the effects of increasing operating costs in comparable clubs and the incremental costs associated with two additional warehouse clubs in operation. 

· Operating income for the first three months of fiscal year 2011 was $22.6 million, an increase of $6.3 million over the first three months of fiscal year 2010.

· Net income attributable to PriceSmart for the first three months of fiscal year 2011 was $14.9 million, or $0.50 per diluted share.

COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009

Certain percentages presented are calculated using actual results prior to rounding.  The Company’s fiscal first quarter ends on November 30.  Unless otherwise noted, references to net income relate to net income attributable to PriceSmart. Unless otherwise noted, all tables present U.S. dollar amounts in thousands.

Net Warehouse Club Sales

	Three Months ended November 30,
	2010				2009
	Amount		% Change		Amount
Net warehouse club sales	$	377,331	22.3	%	$	308,653

Comparison of Three Months ended November 30, 2010 to 2009

The Company had two additional warehouse clubs in operation in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010 (San Fernando in Trinidad, and Arroyo Hondo in Santo Domingo, Dominican Republic).  Together they added approximately 492 basis points of sales growth in the most recent quarter.  In total (including those two additional clubs) sales growth in the quarter was driven mostly by transaction growth (17.8%) while the average value of each transaction increased (3.7%).  Sales growth was evident across all of the Company’s markets and major merchandise categories, particularly in Costa Rica where the local currency continues to be strong compared to the US dollar making the imported merchandise relatively more affordable to our members.

Comparable Sales

The Company reports comparable warehouse club sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month that is used for financial reporting purposes. This approach equalizes the number of weekend days and week days in each period for improved sales comparison, as the Company experiences higher warehouse club sales on the weekends. Further, each of the warehouse clubs used in the calculations was open for at least 13 1/2 calendar months before its results for the current period were compared with its results for the prior period. For example, the sales related to the new warehouse club opened in the Dominican Republic on November 5, 2010 will not b e used in the calculation of comparable warehouse club sale until January 2012.  Similarly, the sales related to the new warehouse club opened in Trinidad on April 30, 2010 will not be used in the calculation of comparable warehouse club sales until July 2011.  

Comparison of Three Months ended November 30, 2010 to 2009

Comparable warehouse club sales, which are for warehouse clubs open at least 13 1/2 full months, increased 16.9% for the 13-week period ended December 5, 2010, compared to the same 13-week period last year.

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Net Warehouse Club Sales by Segments

The following tables indicate the net warehouse club sales and the percentage growth in net warehouse club sales during the three months ended November 30, 2010 and 2009 in the segments in which the Company operates.

As of August 31, 2010 the Company changed the “Central America” operating segment to the “Latin America” operating segment to reflect the inclusion of Colombia within the general geographic area of the Company’s operations.

	Three Months Ended November 30,
		2010							2009
		Amount	% of net revenue			Year on year increase	% change		Amount		% of net revenue
Latin America	$	234,626	62.2	%	$	48,395	26.0	%	$	186,231		60.3	%
Caribbean		142,705	37.8	%		20,283	16.6	%		122,422		39.7	%
Net warehouse club sales	$	377,331	100.0	%	$	68,678	22.3	%	$	308,653		100.0	%

Comparison of Three Months ended November 30, 2010 to 2009

The higher net warehouse club sales in Latin America compared to the Caribbean reflects improved economic conditions in those more diversified markets, particularly Costa Rica where the local currency continues to be strong compared to the US dollar, making the imported merchandise relatively more affordable to our members.

Export Sales 

		Three Months Ended November 30,
		2010				2009
		Amount	Increase from prior year	% Change		Amount
Export sales	$	1,409	822	140.0	%	$	587

The increase in export sales was due to direct sales to a single institutional customer (retailer) in the Philippines.

Membership Income

	Three Months Ended November 30,
	2010							2009
		Amount			Increase from prior year	% Change		Amount
Membership income	$	5,425		$	776	16.7	%	$	4,649
Membership income % to net warehouse club sales		1.4	%						1.5	%
Number of total accounts		740,784			83,784	12.8	%		657,000

Comparison of Three Months ended November 30, 2010 to 2009

For the first quarter of fiscal year 2011, the increase in membership income reflects both a 12.8% increase in the number of membership accounts and a 1.2% increase in the average fee collected per membership account resulting from changes in the type of membership accounts established.  The membership renewal rate for the 12 month periods ended November 30, 2010 and 2009 was 88% and 83%, respectively.

Other Income

Other income consists of commission revenue, rental income, advertising revenue, construction revenue, fees for in-store product demonstrations, end-cap income, and fees earned from licensees.

		Three Months Ended November 30,
		2010					2009
		Amount		Increase from prior year	% Change		Amount
Other i ncome	$	1,907	$	377	24.6	%	$	1,530

Comparison of Three Months ended November 30, 2010 to 2009

For fiscal year 2011, the year over year increases was primarily due to increased revenue received for in-store product demonstrations of approximately $221,000 and increased rental income of approximately $133,000, primarily due to the leasing of the former warehouse club in Los Pueblos, Panama.

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Gross Margin

Warehouse Sales Gross Profit Margin

	Three Months Ended November 30,
		2010					2009
		Amount		Increase from prior year	% to sales		Amount		% to sales
Warehouse club sales	$	377,331	$	68,678	100.0	%	$	308,653	100.0	%
Less associated cost of goods sold		317,813		56,096	84.2			261,717	84.8	%
Warehouse gross profit margin	$	59,518	$	12,582	15.8	%	$	46,936	15.2	%

Comparison of Three Months ended November 30, 2010 to 2009

For the first quarter of fiscal 2011, the increase in warehouse gross profit margin dollars was due to higher sales and a 57 basis point improvement in gross profit margin as a percentage of sales, resulting from reduced markdowns on merchandise, strong end-cap activity, and improvements in inventory shrink results.  Foreign exchange had little year over year effect in the quarter.

Export Sales Gross Profit Margin

	Three Months Ended November 30,
	2010							2009
	Amount		Increase from prior year		% to sales			Amount		% to sales
Export sales	$	1,409	$	822		100.0	%	$	587		100.0	%
Less associated cost of goods sold		1,344		790		95.4			554		94.4
Export sales gross profit margin	$	65	$	32		4.6	%	$	33		5.6	%

Comparison of Three Months ended November 30, 2010 to 2009

The increase in export sales gross margin dollars in each fiscal year was due to an increase in direct sales to an institutional customer (retailer) in the Philippines for which the Company generally earns a margin of approximately 5% of those sales.

Selling, General and Administrative Expenses

Warehouse Club Operations

	Three Months Ended November 30,
	2010											2009
		Amount		% to warehouse club sales			Increase from prior year		% Change				Amount		% to warehouse club sales
Warehouse club operations expense		$	35,133		9.3	%	$	5,899		20.2	%		$	29,234		9.5	%

Comparison of Three Months ended November 30, 2010 to 2009

The costs associated with operating two additional warehouse clubs in the first quarter of fiscal year 2011 (Arroyo Hondo for approximately one month, and San Fernando for three months) were $1.3 million.  Of the $4.6 million increase in warehouse club operation expenses attributable to the 26 warehouse clubs operating in the first quarter of both fiscal years, $2.5 million related to increased payroll-related expenses, including stock-based compensation expense.  Utilities costs increased $358,000 million due to an increase in utility rates after the Company experienced savings in fiscal year 2009.  Depreciation expense increased $353,000 related to ongoing capital investments made in the existing warehouse clubs and the completion of the new warehouse club in Panama City, P anama into which an existing warehouse club was relocated.  Increased costs for repairs and maintenance and supplies added $293,000 and $199,000, respectively.  Credit card costs increased by a total of $392,000 resulting from higher sales but decreased as a percentage of sales from 0.80% of sales in the first quarter last year to 0.78% of sales in the current quarter, reflecting ongoing savings resulting from the co-branded credit cards offered to the Company’s members.

General and Administrative Expenses

	Three Months Ended November 30,
	2010								2009
		Amount	% to warehouse club sales			Increase from prior year	% Change		Amount		% to warehouse club sales
General and administrative expenses	$	8,810	2.3	%	$	1,242	16.4	%	$	7,568	2.5	%

Comparison of Three Months ended November 30, 2010 to 2009

Increased salaries and benefits for the Company’s corporate and U.S. buying operations, including expenses associated with stock compensation of $750,000, and additional travel expenses of approximately $273,000 were primarily responsible for the increase in general and administrative expenses in the first quarter of fiscal year 2011.

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Pre-Opening Expenses

Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses. 

	Three Months Ended November 30,
	2010						2009
		Amount	Increase/(decrease) from prior year		% Change		Amount
Pre-opening expenses	$	403	$	292	263.1	%	$	111

Comparison of Three Months ended November 30, 2010 to 2009

  In the first quarter of fiscal year 2011, pre-opening expenses were almost entirely related to the new warehouse club in the Dominican Republic which opened on November 5, 2010.  The Company did incur a small amount of pre-opening expenses for its planned new warehouse club in Barranquilla, Colombia in the quarter.  The prior year expenses related to the new warehouse club in Trinidad which opened in April 2010.

Operating Income

	Three Months Ended November 30,
	2010								2009
		Amount	% to warehouse club sales		Increase/(decrease) from prior year		% Change		Amount		% to warehouse club sales
Operating income	$	22,569	6.0	%	$	6,334	39.0	%	$	16,235	5.3	%

Comparison of Three Months ended November 30, 2010 to 2009

Operating income improved from fiscal 2010 to fiscal 2011 and from fiscal 2009 to fiscal 2010, resulting from higher sales, improved net warehouse margins and the leveraging of fixed SG&A costs.

Interest Income

Interest income reflects earnings on cash and cash equivalent balances and restricted cash deposits.

		Three Months Ended November 30,
		2010				2009
		Amount		Increase/(decrease) from prior year		Amount
Interest income	$	129	$	(86	)	$	215

 Comparison of Three Months ended November 30, 2010 to 2009

 For fiscal year 2011, the decrease in interest income was primarily due to a decrease in interest rates received on deposits the Company holds and for the three months ended November 30, 2009, the Company recorded approximately $99,000 in interest income associated with interest accrued on a fiscal year 2006 tax refund.

 Interest Expense

	Three Months Ended November 30,
	2010					2009
		Amount			Increase/(decrease) from prior year	Amount
Interest expense on loans	$	1,146		$	179	$	967
Capitalized interest		(190	)		147		(337	)
Net interest expense	$	956		$	326	$	630

Comparison of Three Months ended November 30, 2010 to 2009

  Interest expense reflects borrowings by the Company’s wholly owned foreign subsidiaries to finance new warehouse club construction and land acquisition, the capital requirements of warehouse club operations, and ongoing working capital requirements. The increases in interest expense in the first quarter of fiscal year 2011 was due to an increase in debt held by the Company primarily to finance the acquisition of land and the subsequent construction of new warehouse clubs.

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Provision for Income Taxes

	Three Months Ended November 30,
	2010						2009
	Amount			Increase/(decrease) from prior year			Amount
Current tax expense	$	5,927		$	2,389		$	3,538
Net deferred tax provision (benefit)	$	918		$	(945	)	$	1,863
Provision for income taxes	$	6,845		$	1,444		$	5,401
Effective tax rate		31.6	%					34.1	%

Comparison of Three Months ended November 30, 2010 to 2009

For fiscal year 2011, the decrease in the effective tax rate is primarily attributable to a benefit from the re-measurement of the U.S. deferred tax assets of $437,000 due to a change in the U.S. statutory tax rate that is applicable to the current year, from 34% to 35%.

Loss of Unconsolidated Affiliates

The joint ventures are accounted for under the equity method of accounting in which the Company reflects its proportionate share of income or loss.

	Three Months Ended November 30,
	2010				2009
	Amount			Increase/(decrease) from prior year	Amount
Loss of unconsolidated affiliates	$	5	$	3	$	2

 Comparison of Three Months ended November 30, 2010 to 2009

The losses from the Company’s unconsolidated affiliates in Costa Rica and Panama in fiscal years 2010 and 2009 were primarily due to legal and administrative start up costs incurred by the joint ventures. 

Net Income Attributable to Noncontrolling Interests

Noncontrolling interest is the allocation of the joint venture income or loss to the noncontrolling stockholders’ respective interest.

	Three Months Ended November 30,
	2010					2009
	Amount		Increase/(decrease) from prior year			Amount
Net income attributable to noncontrolling interests	$	—	$	(53	)	$	53

 Comparison of Three Months ended November 30, 2010 to 2009

For the first quarter of fiscal year 2011, the decrease in the loss attributable to noncontrolling interest from fiscal year 2009 was due to the Company acquiring within the third quarter of fiscal year 2010 the remaining 5% interest in the Company’s Trinidad subsidiary that it did not own.  As a result, the Company now owns 100% of all of the operating subsidiaries of the Company and now records 100% of these subsidiaries’ income or loss.  

Income from Continuing Operations Attributable to PriceSmart

	Three Months Ended November 30,
	2010						2009
		Amount	Increase/(decrease) from prior year		% Change		Amount
Income from continuing operations attributable to PriceSmart	$	14,846	$	4,478	43.2	%	$	10,368

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Income (Loss) from Discontinued Operations, Net of Tax

 Income from discontinued operations, net of tax reflects the consolidated income and expenses associated with those operations within the Company that were closed or disposed of and which meet the criteria for such a treatment. Discontinued operations include the costs associated with the Company’s previously closed warehouse location in Guam which is leased to a subtenant.  

	Three Months Ended November 30,
	2010								2009
		Amount	Increase/(decrease) from prior year			% Change			Amount
Income (loss) from discontinued operations, net of tax	$	7	$	(2	)	(22.2	)	%	$	9

Comparison of Three Months ended November 30, 2010 to 2009

For the first quarter of fiscal year 2011, the Company continued to record expenses offset by sublease income for the closed warehouse location in Guam.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

The Company requires cash to fund its operating expenses and working capital requirements which include the construction of property for new warehouse clubs, expansion projects  for existing warehouse clubs and distribution centers, normal upgrades and maintenance of fixtures and equipment within existing warehouse clubs, investments in joint ventures in Panama and Costa Rica to own and operate commercial retail centers located adjacent to the new warehouse clubs, acquisition of noncontrolling interest within certain of its subsidiaries and the purchase of treasury stock upon the vesting of restricted stock awards.  The Company’s primary sources for funding these requirements are cash and cash equivalents on hand, cash generated from operations, short-term debt, long-term debt and credit facilities.  ; The Company evaluates on a regular basis if it may need to borrow additional funds if the Company is unable to generate sufficient cash from operations to meet its operating or capital requirements.  As such, the Company may evaluate and enter into or obtain additional loans and/or credit facilities to provide additional liquidity.  Total cash and cash equivalents at the end of the periods reported were as follows (in thousands):

	Three Months Ended
	November 30,
	2010		2009
Cash and cash equivalents	$	48,454	$	39,039

The Company’s cash flows are summarized as follows (in thousands):

	Three Months Ended
	November 30,
	2010			2009
Cash flows provided by (used in) continuing operating activities	$	(5,663	)	$	(3,782	)
Cash flows provided by (used in) discontinued operations		(218	)		140
Cash flows provided by (used in) by investing activities		(14,195	)		(8,665	)
Cash flows provided by (used in) by financing activities		(4,871	)		7,562
Effect of exchange rates		55			(409	)
Net increase (decrease) in cash and cash equivalents	$	(24,892	)	$	(5,154	)

Operating activities used cash for both periods presented.  Net income increased by approximately $4.5 million to $14.9 million in the first three months of fiscal year 2011, compared to $10.4 million in the first three months of fiscal year 2010.  Net income for the first three months of fiscal year 2011  included approximately $6.0 million in non-cash related expenses consisting of depreciation, deferred income taxes, stock-based compensation expense and other non-cash operating activities of approximately $4.2 million, $827,000, $932,000 and $53,000, respectively.  In the first three months of fiscal year 2011, net cash used by continuing operating activities included cash use of approximately $38.2 million to increase inventories to open the Dominican Republic, Arroyo Hondo warehou se club, meet higher sales demand and to prepare for the holiday season.  Changes in operating assets and liabilities excluding inventory, provided approximately $11.6 million of cash in the first three months of fiscal year 2011.  Cash used by operating activities during the first three months of fiscal year 2010 resulted primarily from the decreased net income of approximately $400,000 to $10.4 million.  Net income included approximately $5.4 million in non-cash related expenses.  This was principally comprised of depreciation, deferred income taxes, stock-based compensation expense and other non-cash operating activities for approximately $3.6 million, $1.0 million, $770,000 and ($63,000), respectively.  In the first three months of fiscal year 2010, net cash used by continuing operating activities included cash use of approximately $31.5 million to increase inventories in preparation of the holiday sales.  Changes in operatin g assets and liabilities excluding inventory, provided cash of approximately $12.0 million in the first three months of fiscal year 2010. 

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Cash used in investing activities for the first three months of fiscal year 2011 consisted primarily of additions to property and equipment for approximately $14.2 million.  The Company acquired approximately 210,000 square feet of land in Barranquilla, Colombia for the equivalent of approximately $6.5 million United States Dollars in November  2010.  The Company plans to construct on this site a new membership warehouse club, expected to open during the summer of 2011.  The Company initially paid approximately $4.3 million in November 2010 and upon the completion of certain improvements, expected to occur by March 2011, the Company will then make the final payment of approximately $2.2 million.  The Company continued with the development of new warehouse club sites and the expansion of exi sting warehouse clubs in Latin America and the Caribbean.  Construction costs within these two segments for the three months ended November 30, 2010 were approximately $513,000 and $3.8 million, respectively.  The Company continued its expansion of the Miami warehouse, recording costs related to the expansion of approximately $151,000 for the first three months of fiscal year 2011.  In addition, the Company continued to acquire fixtures and equipment for new warehouse club sites, the expansion of existing warehouse clubs and corporate offices in Latin America, the Caribbean and the United States.  The Company acquired fixtures and equipment for approximately $1.3 million, $3.4 million and $102,000, respectively, in these segments for the three months ended November 30, 2010.  The Company acquired approximately $567,000 of software and computer hardware during the three months ended November 30, 2010.  In the first three months of fiscal year 2010 investing activities for the Company consisted primarily of additions to property and equipment for approximately $8.6 million.  The Company recorded construction costs in the Latin America and Caribbean segments for the first three months of fiscal year 2010 of approximately $1.8 million and $3.4 million, respectively, in connection with the development of new warehouse club sites and the expansion of existing warehouse clubs in Latin America and the Caribbean.  Fixtures and equipment expenditures within the Latin America, Caribbean and U.S. segments for the first three months of fiscal year 2010 were $1.5 million, $1.4 million and $34,000, respectively.  The Company utilized approximately $574,000 for the acquisition of software and computer hardware in the first three months of fiscal year 2010.  In addition the Company recorded an increase in its investment in the Panama joint venture of $100,000.

Net cash used by financing activities for the first three months of fiscal year 2011 were primarily the result of obtaining new bank loans offset by the establishment of a certificate of deposit held against a loan and payments on existing bank loans for a net effect of $4.9 million of cash used.  Net cash provided by financing activities for the first three months of fiscal year 2010 were primarily as a result of obtaining new bank loans and payments on bank loans for a net effect of $7.2 million of cash provided.  Proceeds from the exercise of stock options and the tax benefit related to stock options provided an additional $400,000.

Financing Activities(1)

On November 1, 2010, the Company’s Colombia subsidiary entered into a loan agreement with Citibank, N.A. in New York.  The agreement establishes a credit facility for $16.0 million to be disbursed in two tranches of $8.0 million each.  The interest rate is set at the six month LIBOR rate plus 2.4%.  The loan term is five years with interest only payments and a balloon payment at maturity.  The credit facility is renewable for an additional five year period at the option of the Company's Colombia subsidiary.  The loan will be secured by a time deposit pledged by the Company equal to the amount outstanding on the loan.  The deposit will earn an interest rate of six month LIBOR plus 1.6%.  As of November 30, 2010 the Company had received the first of th e two tranches of $8.0 million.

On August 31, 2010, the Company’s Panama subsidiary entered into a loan agreement with Metrobank S.A. for $5.0 million to be paid over five years. The loan is denominated in U.S. dollars and has a tiered fixed interest rate of 5.0% and 5.5% in the first year and the second and third years, respectively. In the fourth and fifth years of the loan, the interest rate will become variable and be equal to the United States prime rate plus 2.5%.  The loan agreement contains a balloon payment at the end of the term of $2.5 million and includes an option to extend the loan for an additional five years.

In March 2010, the Company’s Honduras subsidiary entered into a loan agreement with Banco Del Pais, S.A. for a loan based in Honduran lempiras that is equivalent to $6.0 million, which must be paid over five years.  The loan has a variable interest rate of 11.25%, which will be periodically reviewed and re-set with a 30-day notice of change in the rate.  Early payment of the loan is permitted.  The Company’s Honduras subsidiary also entered into an agreement with Banco Del Pais to open and maintain a certificate of deposit for $6.0 million with an initial interest rate of 3.88%.  The certificate of deposit is automatically renewable by Banco Del Pais on an annual basis for the net amortized outstanding balance.  The Company entered into this loan and certificate of deposit agreement consistent with its strategy to reduce U.S. dollar-denominated liabilities by obtaining local currency loans from banks where it is economical to do so and where risk of devaluation or the level of U.S. dollar-denominated liabilities is high.

In January 2010, the Company’s Honduras subsidiary entered into a loan agreement with ScotiaBank El Salvador S.A. for the amount of $6.0 million to be paid over five years. The loan initially had an interest rate set at the greater of 7.5% or 30-day LIBOR plus 4%.  As of July 1, 2010, the interest on this loan was fixed at 5.5% for the rest of its term. The loan requires a balloon payment at the end of the loan term of approximately $3.1 million.

In September 2009, the Company’s El Salvador subsidiary entered into a loan agreement with ScotiaBank El Salvador S.A. for the amount of $8.0 million to be paid over five years.  The loan initially had an interest rate set at the greater of 7.5% or 30-day LIBOR plus 4%.  As of July 1, 2010, the interest on this loan was fixed at 5.5% for the rest of its term.  The loan requires a balloon payment at the end of the loan term of $4.1 million.

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The Company, through its subsidiaries, has entered into two interest rate swap agreements, one effective beginning in each of fiscal years 2008 and 2009.  Under these swap agreements, the Company will pay a fixed interest rate charge for a term approximately the same as the variable rate loans being hedged.  The Company measures the fair value for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis or on a nonrecurring basis during the reporting period.  The Company has designated the two interest rate swap agreements as hedging instruments and has accounted for them under Hedge Accounting Rules.  The following table summarizes the effect of the fair valuation of derivative instruments designated as hedgin g instruments (in thousands):

(1) All loans are denominated in U.S. dollars unless otherwise stated.

	Liability Derivatives
	November 30, 2010			August 31, 2010
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swaps(1)	Other accrued expenses	$	702	Other accrued expenses	$	767
Total derivatives designated as hedging instruments(2)		$	702		$	767

(1)	The effective portion of the interest rate swaps was recorded as a loss to accumulated other comprehensive loss for $526,000 and $576,000, net of tax, as of November 30, 2010 and August 31, 2010, respectively.
(2)	All derivatives were designated as hedging instruments.

Short-Term Borrowings and Long-Term Debt

As of November 30, 2010 and August 31, 2010, the Company, together with its wholly owned subsidiaries, had approximately $4.0 million and $3.6 million outstanding in short-term borrowings, respectively.

The Company has bank credit agreements that provide for borrowings of up to $28.0 million, which can be used as lines of credit or to issue letters of credit. As of November 30, 2010, lines and letters of credit totaling approximately $4.2 million were outstanding under these facilities, leaving approximately $23.8 million available for borrowing.  As of August 31, 2010, lines and letters of credit totaling approximately $4.0 million were outstanding on a bank credit agreement that provided for borrowings up to $27.9 million, leaving approximately $23.9 million available for borrowing.

As of November 30, 2010 and August 31, 2010, the Company, together with its majority or wholly owned subsidiaries, had $63.5 million and $60.7 million, respectively, outstanding in long-term borrowings. The increase during the current period primarily relates to the addition of long-term loans for approximately $8.0 million, offset by normally scheduled payments of principal for approximately $5.2 million. The carrying amount of the non-cash assets assigned as collateral for long-term debt was $90.2 million and $87.4 million as of November 30, 2010 and August 31, 2010, respectively. 

As of November 30, 2010 and August 31, 2010 approximately $32.3 million and $36.7 million, respectively, relate to loans in Trinidad, Barbados, Panama, El Salvador and Honduras that require these subsidiaries to comply with certain annual or quarterly financial covenants which include debt service and leverage ratios.  As of November 30, 2010 and August 31, 2010, the Company was in compliance with respect to these covenants.

Contractual Obligations

As of November 30, 2010, the Company's commitments to make future payments under long-term contractual obligations were as follows (in thousands):

	Payments due in:
Contractual obligations	Less than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years		Total
Long-term debt and interest (1)(7)	$	11,528	$	20,575	$	36,607	$	8,253	$	76,963
Operating leases (2)(3)		6,454		13,403		13,464		47,966		81,287
Additional capital contribution commitments to  joint ventures (4)		3,663		—		—		—		3,663
Equipment lease(5)		18		—		—		—		18
Distribution center services(6)		125		10		—		—		135
Total	$	21,788	$	33,988	$	50,071	$	56,219	$	162,066

(1)	Long-term debt includes debt with both fixed and variable interest rates.  The Company has used variable rates as of November 30, 2010 to calculate future estimated payments related to the variable rate items.  For the portion of the loans subject to interest rate swaps, the Company has used the fixed interest rates as set by the interest rate swaps.
(2)	Amounts shown exclude future operating lease payments due for the closed warehouse club in Guam.  The projected minimum payments excluded for Guam are approximately $741,000; projected sublease income for this location is approximately $890,000, yielding no net projected obligation.
(3)	Operating lease obligations have been reduced by approximately $428,000 to reflect the amounts net of sublease income.
(4)	Amounts shown are the contractual capital contribution requirements for the Company's investment in the joint ventures that the Company has agreed to make; however, the parties intend to seek alternate financing for these projects.
(5)	Certain obligations under leasing arrangements are collateralized by the underlying asset being leased.
(6)	Amounts shown are the minimum payments under contractual distribution center services agreements for Mexico City.
(7)	As of July 1, 2010, contractual obligations on long-term debt and interest changed as a result of changes to the interest rates on loans with Scotia Bank totaling approximately $22.3 million.  The interest rate was changed to a fixed rate of 5.5%.  This resulted in a reduction of long-term interest payments of approximately $1.5 million over the next five years.

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Critical Accounting Estimates

The preparation of the Company's consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Some of the Company’s accounting policies require management to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Management continues to review its accounting policies and evaluate its estimates, including those related to contingencies and litigation, deferred taxes, merchandise inventories, goodwill, long-lived assets, stock-based compensation and warehouse closure costs. The Company base s its estimates on historical experience and on other assumptions that management believes to be reasonable under the present circumstances. Using different estimates could have a material impact on the Company's financial condition and results of operations.

Contingencies and Litigation: In the ordinary course of business, the Company is periodically named as a defendant in various lawsuits, claims and pending actions and is exposed to tax risks (other than income tax). The principal risks that the Company insures against are workers’ compensation, general liability, vehicle liability, property damage, employment practices, errors and omissions, fiduciary liability and fidelity losses. If a potential loss arising from these lawsuits, claims, actions and non-income tax issues is probable and reasonably estimable, the Company records the estimated liability based on circumstances and assumptions existing at the time.  The estimates affecting the Company’s litigation reserves can be affected by new claims filed aft er the balance sheet date with respect to events occurring prior to the balance sheet date and developments in pending litigation that may affect the outcome of the litigation.  While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of litigation and in evaluating the probable additional tax associated with various non-income tax filing positions.  As such, the Company is unable to make a reasonable estimate of the sensitivity to change of estimates affecting its recorded liabilities.  As additional information becomes available, the Company assesses the potential liability and revises its estimates as appropriate.  While the Company believes the recorded liabilities are adequate, there are inherent limitations in the estimation process whereby actual losses may exceed estimated losses.

Income Taxes: A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.  As of November 30, 2010, the Company evaluated its deferred tax assets and liabilities and determined that a valuation allowance is necessary for certain foreign deferred tax asset balances primarily because of the existence of significant negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carry-forward periods are not sufficient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and al so considered the potential risks associated with its business. 

The Company had U.S. federal and state tax net operating loss carry-forwards, or NOLs, at November 30, 2010 of approximately $28.8 million and $4.8 million, respectively. In calculating the tax provision, and assessing the likelihood that the Company will be able to utilize the deferred tax assets, the Company considered and weighed all of the evidence, both positive and negative, and both objective and subjective. The Company factored in the inherent risk of forecasting revenue and expenses over an extended period of time and considered the potential risks associated with its business. Because of the Company’s U.S. income from continuing operations and based on projections of future taxable income in the United States, the Company was able to determine that there was sufficient positive evidence to support the conclusion that i t was more likely than not that the Company would be able to realize substantially all of its U.S. NOLs by generating taxable income during the carry-forward period. However, if the Company does not achieve its projections of future taxable income in the United States, the Company could be required to take a charge to earnings related to the recoverability of these deferred tax assets. Due to the deemed change of ownership (as defined in Section 382 of the Internal Revenue Code) in October 2004, there are annual limitations in the amount of U.S. income that may be offset by NOLs. The NOLs generated prior to the deemed ownership change date, as well as a significant portion of the losses generated as a result of the PSMT Philippines disposal in August 2005, are limited on an annual basis. The Company does not believe this will impact the recoverability of these NOLs. Conversely, due to their shorter recovery period and limitations applicable under section 383 of the Internal Revenue Code regarding change s of ownership, the Company has maintained valuation allowances on U.S. foreign tax credits (generated before the date of the deemed ownership change) and all capital loss carry-forwards.

The Company is required to file federal and state tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances.  The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations the Company used to calculate its tax liability and therefore require the Company to pay additi onal taxes and associated penalties and interest.

The Company accrues an amount for its estimate of probable additional income tax liability.  The Company recognizes the impact of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority.  An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.  As of  November 30, 2010, the Company has classified uncertain income tax positions as $3.7 million in long-term income taxes payable. The classification of an income tax liability as current, as opposed to long-term, occurs when the Company expects to make a cash payment in the following 12 months.  As of November 30, 2010, the Company does not expect to make cash payments fo r these liabilities in the following 12 months.

Merchandise Inventory: The Company records its inventory at the lower of cost (average cost) or market. The Company provides for estimated inventory losses between physical inventory counts on the basis of a percentage of sales. The provision is adjusted monthly to reflect the trend of actual physical inventory count results, with physical inventories occurring primarily in the second and fourth fiscal quarters. In addition, the Company monitors slow-moving inventory to determine if provisions should be taken for expected markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.  The uncertainties associated with these methods, assumptions and estimates with regard to the Company’s reported inventory, including the estimated provisions, has not had and is not expected to have a material impact on the financial condition and operating performance of the Company or on the comparability of the reported information for the periods presented, as historically the actual results have not differed materially from the estimates.  The likelihood of any material changes in inventory losses or markdowns is dependent on customer demand or new product introductions by the Company or its competitors that vary from current expectations.  The Company believes that any changes on these factors are not reasonably likely to occur and hence not reasonably likely to have a material impact on the Company’s financial results.

42

Long-lived Assets: The Company periodically evaluates its long-lived assets for indicators of impairment.  Indicators that an asset may be impaired are:

- the asset’s inability to continue to generate income from operations and positive cash flow in future periods;

- loss of legal ownership or title to the asset;

- significant changes in its strategic business objectives and utilization of the asset(s); and

- the impact of significant negative industry or economic trends.

Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity, which in turn drives estimates of future cash flows from these assets. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market value. Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges. For example, the Company recorded an impairment charge of approximately $169,000 in fiscal year 2009 to write-down the long-lived assets utilized for warehouse handling equipment and point of sales hardware in the Latin America and Caribbean business segments. The Company recorded approximately $18,000 in impairment charges related to the impairment of warehouse handling equipment during fiscal year 2010.

Recent Accounting Pronouncements

FASB ASC 310

In July 2010, the Financial Accounting Standards Board (“FASB”), issued amended guidance with regard to disclosures about the credit quality of financing receivables and the allowance for credit losses.  This update is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses by providing disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. The Company is required to adopt this amended guidance on th e disclosures as of the end of a reporting period and it is effective for interim and annual reporting periods ending on or after December 15, 2010.  The adoption of this guidance on disclosures will not have an impact on the Company’s consolidated financial statements or disclosures with regard to financing receivables.

FASB ASC 810

In January 2010, the FASB issued a clarification of scope with regard to accounting for noncontrolling interest in consolidation.  The Company adopted the original guidance as of the beginning of its annual reporting period beginning on September 1, 2009 (fiscal year 2010) and for all subsequent interim and annual periods.  The adoption of this amendment did not have a material effect on the Company’s financial position or results of operations.  In May 2010, the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary.  The Company recorded the change in the ownership interest as an equity transaction, adjusting additional paid-in capital for the difference between the fair value of consideration paid less the book value of the noncontrolling interest (see Not e 12 - Acquisition of Noncontrolling Interest).

FASB ASC 810

In December 2009, the FASB amended guidance and implemented changes regarding how the process by which a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design, and the reporting entity's ability to direct the activities that most significantly impact the other entity’s economic performance.  The guidance also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.  A reporting entity will be req uired to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. The Company is required to adopt this guidance as of the beginning of its first annual reporting period that begins after November 15, 2009, which is fiscal year 2011 for the Company.  The adoption of the standard did not have a material effect on the Company's consolidated financial statements.

43

 Seasonality

Historically, the Company's merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, the Company's operating results fluctuate quarter-to-quarter as a result of economic and political events in markets served by the Company, the timing of holidays, weather, the timing of shipments, product mix, and currency effects on the cost of U.S.-sourced products which may make these products more or less expensive in local currencies and therefore more or less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that the Company's future results will be consistent with past results or the projections of securiti es analysts.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company, primarily through wholly owned subsidiaries, conducts operations primarily in Latin America and the Caribbean, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of November 30, 2010, the Company had a total of 28 consolidated warehouse clubs operating in 11 foreign countries and one U.S. territory, 21 of which operate under currencies other than the U.S. dollar. For the three months ended November 30, 2010 and 2009, approximately 79% and 78% of the Company's net warehouse club sales were in foreign currencies. The Company may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net warehouse sales denominated in foreign currenci es.

Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. For example, during fiscal years 2009 and 2008, the currencies in Guatemala and Jamaica experienced an 11% and a 23% devaluation, respectively. However, this devaluation trend was reversed in fiscal year 2010, as currencies in Costa Rica, Jamaica, and Guatemala experienced a 14%, 4% and 3% strengthening of their currencies, respectively, between the end of fiscal year 2009 and the end of fiscal year 2010.  For the three months ended November 30, 2010 the currencies in Costa Rica and Guatemala continued to experience 0.3% and 0.9% strengthening of their currencies, respectively.  For the three months ended November 30, 2010 currencies in Jamaica and Colomb ia experienced an 0.7% and 5.1% devaluation, respectively.  There can be no assurance that the Company will not experience any other materially adverse effects on the Company's business, financial condition, operating results, cash flow or liquidity, from currency devaluations in other countries.

Foreign exchange transaction gains/(losses), which are included as a part of the costs of goods sold in the consolidated statement of income, were approximately $378,000 and $383,000 for the three months ended November 30, 2010 and 2009, respectively.  Translation adjustment gains/(losses) from the Company’s share of subsidiaries and investment in affiliates that use a functional currency other than the U.S. dollar, resulting from the translation of the assets and liabilities of these companies into U.S. dollars, were approximately ($198,000) and $152,000 for the three months ended November 30, 2010 and 2009, respectively.  For the three months ended November 30, 2010 and 2009, gains/(losses) on the fair value of interest rate swaps designated as effective hedges recorded in accumulated other comprehensi ve income/(loss) were approximately $50,000 and ($71,000), net of tax, respectively.

The following is a listing of the countries or territories where the Company currently operates and their respective currencies, as of November 30, 2010:

Country/Territory	Number of Warehouse Clubs In Operation			Anticipated Warehouse Club Openings in FY 2011			Currency
Colombia		—			1	(1)	Colombia Peso
Panama		4			—		U.S. Dollar
Costa Rica		5			—		Costa Rican Colon
Dominican Republic		3	(2)		—		Dominican Republic Peso
Guatemala		3			—		Guatemalan Quetzal
El Salvador		2			—		U.S. Dollar
Honduras		2			—		Honduran Lempira
Trinidad		4			—		Trinidad Dollar
Aruba		1			—		Aruba Florin
Barbados		1			—		Barbados Dollar
U.S. Virgin Islands		1			—		U.S. Dollar
Jamaica		1			—		Jamaican Dollar
Nicaragua		1			—		Nicaragua Cordoba Oro
Totals		28			1

(1)	This warehouse club is expected to open in the summer of 2011.
(2)	The Company opened a warehouse club in this country/territory on November 5, 2010 (Arroyo Hondo).

44

ITEM 4.             CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decision regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Also, we have investments in certain unconsolidated entities.  Because we do not control or manage those entities, our control procedures with respect to those entities were substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As required by SEC Rules 13a-15(e) or 15d-15(e), we carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

In the ordinary course of business, we review our system of internal control over financial reporting and make changes to our systems and processes to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems and automating manual processes. There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibit 31.1 and 31.2 to this report.

45

 PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 None.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2010. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A, of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2010.

Available Information

The PriceSmart, Inc. website or internet address is www.pricesmart.com. On this website the Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, and the annual report to the security holders as soon as reasonably practicable after electronically filing such material with or furnishing it to the U.S. Securities and Exchange Commission (SEC). The Company’s SEC reports can be accessed through the investor relations section of its website under “SEC Filings.” All of the Company’s filings with the SEC may also be obtained at the SEC’s Public Reference Room at Room 1580, 100 F Street NE, Washington, DC 20549. For information regarding the operation of the SEC’s Public Reference Room, p lease contact the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.  The Company made available its annual report on Form 10-K and its annual Proxy Statement for the fiscal year 2010 at the internet address http://materials.proxyvote.com/741511.

46

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)           None.

(b)           None.

(c)           None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5.           OTHER INFORMATION

None.

47

ITEM 6.                      EXHIBITS

(a) Exhibits:

3.1(1)	Amended and Restated Certificate of Incorporation of the Company.
3.2(2)	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
3.3(3)	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
3.4(1)	Amended and Restated Bylaws of the Company.
10.1*	Fifteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of October 6, 2010.
10.2*	Twenty-Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 6, 2010.
10.3*	Loan agreement between PriceSmart Colombia, S.A.S. and Citibank, N.A., dated as of November 1, 2010.
10.4*	Deposit between PriceSmart, Inc. and Citibank, N.A., New York, dated as of November 24, 2010.
10.5*	Purchase agreement between PriceSmart Colombia S.A.S. and Cementos Argos S.A., dated as of May 16, 2010.
10.6*	Addendum No. 1 to purchase agreement between Colombia S.A.S. and Cementos Argos S.A., dated as of July 26, 2010.
10.7*	Addendum No. 2 to purchase agreement between Colombia S.A.S. and Cementos Argos S.A., dated as of October 22, 2010.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Identifies management contract or compensatory plan or arrangement.

** These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

(1) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.

(2) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004.

(3) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 filed with the Commission on November 24, 2004.

48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PRICESMART, INC.
Date: January 7, 2011	By:	/s/ JOSE LUIS LAPARTE
		Jose Luis Laparte
		Director, Chief Executive Officer and President
		(Principal Executive Officer)
Date: January 7, 2011	By:	/s/ JOHN M. HEFFNER
		John M. Heffner
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

49

EX-10.1

FIFTEENTH AMENDMENT TO EMPLOYMENT AGREEMENT

This Fifteenth Amendment to Employment Agreement is made and entered into as of October 6, 2010, by and between PriceSmart, Inc., a Delaware Corporation ("Employer") and Jose Luis Laparte ("Executive").

Recitals

A)   On June 3, 2004 an Employment Agreement was made and entered into by and between Employer and Executive.

B)   Said Employment Agreement has been amended on fourteen prior occasions;

C)   Employer and Executive now desire to amend the Employment Agreement, as set forth hereinbelow:

Agreement

1.   Section 3.1 of the Agreement which provides:

3.1           Term.  The term of Executive's employment hereunder shall commence on October 8, 2004 and shall continue until October 7, 2010, unless sooner terminated or extended as hereinafter provided (the "Employment Term").

is hereby amended, to provide as follows:

3.1Term.  The term of Executive's employment hereunder shall commence on October 8, 2004 and shall continue until October 7, 2011, unless sooner terminated or extended as hereinafter provided (the "Employment Term").

2.   All other terms of the Employment Agreement, as amended, shall remain unaltered and fully effective.

Executed in San Diego, California, as of the date first written above.

EXECUTIVE                                                                                                EMPLOYER

PRICESMART, INC.

Jose Luis Laparte                                                                          By:           _________________ 

______________________                                                              Name:       _________________                                              

Its:           __________________

EX-10.2

TWENTY-FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

This Twenty-Fourth Amendment to Employment Agreement is made and entered into as of October 6, 2010, by and between PriceSmart, Inc., a Delaware Corporation (“Employer”) and Robert M. Gans (“Executive”).

Recitals

A)   On September 20, 1994 an Employment Agreement was made and entered into by and between Executive and Price Enterprises, Inc.

B)   Said Employment Agreement has been assigned to Employer and amended on twenty-three prior occasions;

C)   Employer and Executive now desire to further amend the Employment Agreement, as set forth hereinbelow:

Agreement

1.    Section 3.1 of the Employment Agreement, which currently provides:

3.1           Term.  The term of Executive's employment hereunder shall commence on October 17, 1994 and shall continue until October 16, 2010 unless sooner terminated or extended as hereinafter provided (the "Employment Term").

is hereby amended, to provide as follows:

3.1           Term.  The term of Executive's employment hereunder shall commence on October 17, 1994 and shall continue until October 16, 2011 unless sooner terminated or extended as hereinafter provided (the "Employment Term").

2.   All other terms of the Employment Agreement, as amended, shall remain unaltered and fully effective.

Executed in San Diego, California, as of the date first written above.

EXECUTIVE                                                                                     EMPLOYER

 PRICESMART, INC.

Robert M. Gans                                                                              By:            ______________        

______________________                                                       Name:       Jose Luis Laparte                                

Its:           Chief Executive Officer

EX-10.3

U.S.$16,000,000.00

CREDIT AGREEMENT

Dated as of November 1st, 2010

Between

PRICESMART COLOMBIA, S.A.S as Borrower

and

CITIBANK, N.A. as Lender

EXECUTION VERSION

	Table of Contents
		Page
	ARTICLE I
	DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01.	Certain Defined Terms	1
SECTION 1.02.	Computations of Time Periods	5
SECTION 1.03.	Accounting Terms	5
	ARTICLE II
	AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01.	The Advances	5
SECTION 2.02.	Making the Advances	5
SECTION 2.03.	Repayment	5
SECTION 2.04.	Interest	5
SECTION 2.05.	Interest Rate Determination	6
SECTION 2.06.	Optional Prepayments	6
SECTION 2.07.		6
SECTION 2.08.	Increased Costs and Increased Capital	6
SECTION 2.09.	Illegality	6
SECTION 2.10.	Payments and Computations	6
SECTION 2.11.	Taxes	7
SECTION 2.12.	Use of Proceeds	7
	ARTICLE III
	CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01.	Conditions Precedent to Effectiveness of Section 2.01.	8
SECTION 3.02.	Conditions Precedent to the Borrowing	9
	ARTICLE IV
	REPRESENTATIONS AND WARRANTIES
SECTION 4.01.	Representations and Warranties of the Borrower	9

		Page
	ARTICLE V
	COVENANTS OF THE BORROWER
SECTION 5.01.	Affirmative Covenants	11
SECTION 5.02.	Negative Covenants	13
SECTION 5.03.	Financial Covenants	13
	ARTICLE VI
	EVENTS OF DEFAULT
SECTION 6.01.	Events of Default	14
	ARTICLE VII
	MISCELLANEOUS
SECTION 7.01.	Amendments, Etc.	15
SECTION 7.02.	Notices, Etc.	16
SECTION 7.03.	No Waiver; Remedies	16
SECTION 7.04.	Costs and Expenses	16
SECTION 7.05.	Right of Set-off	17
SECTION 7.06.	Binding Effect	17
SECTION 7.07.	Assignments and Participations	17
SECTION 7.08.	Governing Law	18
SECTION 7.09	Execution in Counterparts	18
SECTION 7.10.	Jurisdiction; Waiver of Immunities	18
SECTION 7.11.	Judgment Currency	19
SECTION 7.12.	Waiver of Jury Trial	19
Schedules
Schedule 4.01(j)-	Material Contracts
Schedule 5.02(a)-	Existing Liens
Schedule 5.02(b)-	Existing Debt
Exhibits
Exhibit A – Form of Promissory Note Exhibit B -
Form of Notice of Borrowing Exhibit C -
Assignment and Acceptance

CREDIT AGREEMENT

Dated as of November 1st, 2010

PRICESMART COLOMBIA, S.A.S., a corporation organized and existing under the laws of Colombia (the "Borrower") and Citibank, N.A. ("Citibank"), as Lender (as hereinafter defined), agree as follows:

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

"Advance" means an advance by the Lender to the Borrower pursuant to Article II.

"Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and polic ies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.

"Applicable Margin" means 2.4% per annum.

"Assignment and Acceptance" means an assignment and acceptance entered into by the Lender and an assignee of the Lender in substantially the form of Exhibit C hereto.

"Base Rate" means, on any day, a simple rate per annum equal to the sum of the Prime Rate for that day plus the Base Rate Margin. Without notice to Borrower or anyone else, the Base Rate shall automatically fluctuate upward and downward as and in the amount by which the Prime Rate fluctuates.

"Base Rate Margin" means 0.8% per annum. "Borrowing" means the borrowing consisting of the Advances made by the Lender.

"Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and Colombia and, if the applicable Business Day relates to the Advances, on which dealings are carried on in the London, England interbank market.

"Change of Control" means the occurrence of PriceSmart, Inc. ceasing to own at least 51% of the Borrower.

"Collateral" means all the collateral that in accordance with the terms of the Collateral Documents has been or will be pledged to Citibank to secure the obligations of the Borrower under this Credit Agreement and which initially shall include cash or time deposits in the amount of US$8,000,000.

"Collateral Documents" means the Deposit Account Agreement for Time Deposits and the Pledge and Cash Collateral Agreements, entered into between PriceSmart, Inc. and Citibank as of the date of each Borrowing.

"Consolidated" refers to the consolidation of accounts in accordance with GAAP.

"Constituent Documents" means (a) with respect to the Borrower, its articles of formation, bylaws or operating agreements, and (b) with respect to any other Person, (i) if such other Person is a corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction), (ii) if such other Person is a limited liability company, the certificate of formation or articles of formation or organization and operating agreement, and (iii) if such other Person is a partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto f iled in connection with its formation or organization with the applicable governmental authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such Person.

"Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person a s lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (g) all obligations of such Person in respect of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below and other payment obligations (collectively, "Guaranteed Debt") guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Guaranteed Debt or to advance or supply funds for the payment or purchase of such Guaranteed Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Guaranteed Debt or to assure the holder of such Guaranteed Debt against loss, (3) to supply funds to or in any other m anner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (h) above (including Guaranteed Debt) secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.

"Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

"Effective Date" has the meaning specified in Section 3.01.

"Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.

"Environmental Law" means any federal, state, local, national, regional or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.

"Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law.

"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D.

"Eurodollar Rate" means, for any Interest Period for the Advances, an interest rate per annum determined by Citibank at approximately 11:00 A.M. (London time) on the date that is two Business Days before the of the Interest Period by reference to the British Bankers' Association Interest Settlement Rate for Eurodollar deposits (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by Citibank which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period.

-"Events of Default" has the meaning specified in Section 6.01. "GAAP" has the meaning specified in Section 1.03.

"Hazardous Materials" means (a) petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.

"Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements.

"Interest Period" means the period commencing on the date of the Advance and ending six months thereafter and, each subsequent 6 month period commencing on the last day of the immediately preceding Interest Period; provided, however, that:

(i)           if any Interest Period would otherwise end after the Maturity Date, such Interest

Period shall end on the Maturity Date;

(ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

(iii) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

"Lender" means Citibank or any Person that shall become a party hereto pursuant to Section 7.07.

"Lending Office" means, with respect to the initial Lender, the office of the initial Lender specified as its "Lending Office" opposite its name on the signature pages below, and with respect to any other Lender in the Assignment and Acceptance pursuant to which such Lender became a Lender, or such other office of the Lender as the Lender may from time to time specify to the Borrower.

"Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.

"Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, or properties of the Borrower or the Borrower and its Subsidiaries taken as a whole.

"Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, or properties of the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Lender under this Agreement or any Note or (c) the ability of the Borrower to perform its obligations under this Agreement or any Note.

"Maturity Date" means the date stated in the related Note.

"Note" means the promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from an Advance made by the Lender.

"Notice of Borrowing" has the meaning specified in Section 2.02.

"Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, Limited Liability Company or other entity, or a government or any political subdivision or agency thereof.

"Prime Rate" means, on any day, the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low prime rate are therein reported), and the Prime Rate shall change without notice with each change in such prime rate as of the date such change is reported.

"Process Agent" has the meaning specified in Section 7.10.

"Regulation D" means Regulation D of the Board of Directors of the U.S. Federal Reserve System, as in effect from time to time.

"Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would c onstitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

"Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.

"Termination Date" means the earlier of January 31st, 2011 and the date of termination of the Commitment pursuant to Section 6.01.

"United States" or "U.S." means the United States of America.

"U.S. Dollars". "U.S. $" and "$" means the lawful currency of the United States.

"Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.

SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".

SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in Colombia consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) ("GAAP").

ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Advances. The Lender agrees, on the terms and conditions hereinafter set forth, to make two Advances to the Borrower on any Business Day during the period from the Effective Date until the Termination Date in an amount not to exceed U.S. $16,000,000.00 in the aggregate (the Lender's "Commitment"). Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed.

SECTION 2.02. Making the Advances, (a) The Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing, by the Borrower to the Lender. The notice of Borrowing (the "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex, in substantially the form of Exhibit B hereto, specifying therein the requested date of the Borrowing. Upon fulfillment of the applicable conditions set forth in Article III, the Lender will make the funds available to the Borrower at its address referred to in Section 7.02.

(b) The Notice of Borrowing shall be irrevocable and binding on the Borrower. The Borrower shall indemnify the Lender against any loss, cost or expense incurred by the Lender as a result of any failure to fulfill on or before the date specified in the Notice of Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund the Advance when the Advance, as a result of such failure, is not made on such date.

SECTION 2.03. Repayment. The Borrower shall repay to the Lender on the Maturity Date the aggregate principal amount of the Advances then outstanding.

SECTION 2.04. Interest, (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of an Advance owing to the Lender from the date of the Advance until such principal amount shall be paid in full, at a rate per annum equal at all times during each Interest Period to the sum of (x) the 6 month Eurodollar Rate for such Interest Period plus (y) the Applicable Margin, payable in arrears on the last day of such Interest Period and on the date the Advance shall be paid in full.

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default described in Section 6.01(a) or Section 6.01(e), the Lender may require the Borrower to pay interest ("Default Interest") on (i) the unpaid principal amount of an Advance owing to the Lender, payable in arrears on the dates referred to in clause (a) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall

be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on the Advance pursuant to clause (a) above; provided, however, that following acceleration of the Advance pursuant to Section 6.01, Default Interest shall accrue and be payable hereunder whether or not previously required by the Lender.

SECTION 2.05. Interest Rate Determination. If the Lender determines that the Eurodollar Rate for any Interest Period for the Advances will not adequately reflect the cost to the Lender of making, funding or maintaining its Advances for such Interest Period, the Lender shall forthwith so notify the Borrower. During the 15 days next succeeding the giving of such notice, the Borrower and the Lender shall negotiate in good faith in order to arrive at a mutually satisfactory interest rate which shall be applicable during such Interest Period to the Advances. If within such 15-day period, the Borrower and the Lender agree in writing upon an alternative interest rate, such rate shall be effective from the commencement of such Interest Period. If the Borrower and the Lender fail to agree upon such an alternative interest rate within such 15-day period, the interest rate during such Interest Period applicable to the Advances effective from the commencement of such Interest Period shall be at the Base Rate.

SECTION 2.06. Optional Prepayments. The Borrower shall not be able to prepay any amount of the Advances within eighteen (18) months after disbursement, after which it may, upon at least three Business Days' notice to the Lender stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Advances in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of U.S. $1,000,000.00 or an integral multiple of U.S. $1,000,000.00 in excess thereof (unless the prepaym ent retires the outstanding balance of the loan in full);^and (y) the Borrower shall be obligated to reimburse the Lender in respect thereof pursuant to Section 7.04(a).

SECTION 2.07. Left intentionally blank.

SECTION 2.08. Increased Costs and Increased Capital. If the Lender determines a change in law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender and that the amount of such capital is increased by or based upon the existence of the Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by the Lender, the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender or such corporation in the light of such circumstances, to the extent that th e Lender reasonably determines such increase in capital to be allocable to the existence of the Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrower by the Lender shall be conclusive and binding for all purposes, absent manifest error.

SECTION 2.09. Illegality. Notwithstanding any other provision of this Agreement, if the Lender determines that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Lender or its Lending Office to perform its obligations hereunder to make the Advances or to fund or maintain the Advances to be made by it hereunder, the Lender shall forthwith give notice thereof to the Borrower, whereupon (a) until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Lender to make the Advances shall be suspended and (b) if the Lender shall so request in such notice, (i) the eigh teen (18) month restriction on prepayments contained in Section 2.06 shall not apply, and (ii) the Borrower shall immediately prepay in full the then outstanding principal amount of the Advances, together with accrued interest thereon. If it is lawful for the Lender to maintain its Advances through the last day of the Interest Period then applicable to such Advances, such prepayment shall be due on such last day.

SECTION 2.10. Payments and Computations, (a) The Borrower shall make each payment hereunder and under any Note, irrespective of any right of counterclaim or set-off, not later than 12:00 M. (New York City time) on the day when due in U.S. Dollars to the Lender at its Account No. 00167679, which the Lender maintains with Citibank, N.A., 399 Park Avenue, New York, NY 10043, United States of America, ABA No. 021000089, Account Name: Citibank N.A., Reference: will be informed by extending unit once the transaction has been closed, in same day funds.

(b)The Borrower hereby authorizes the Lender, if and to the extent payment owed to the Lender is

not made when due hereunder or under a Note held by the Lender, to charge from time to time against any or all of

the Borrower's accounts with the Lender any amount so due.

(c)All computations of interest based on the Eurodollar Rate and of facility fees shall be made by the

Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but

excluding the last day) occurring in the period for which such interest or facility fees are payable.    Each

determination by the Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent

manifest error.

(d)Whenever any payment hereunder or under a Note shall be stated to be due on a day other than a

Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in

such case be included in the computation of payment of interest or facility fee, as the case may be; provided,

however, that, if such extension would cause payment of interest on or principal of the Advances to be made in the

next following calendar month, such payment shall be made on the next preceding Business Day.

SECTION2.il. Taxes (a) Any and all payments made to the Lender hereunder, under a Note or under any instrument delivered hereunder shall be made, in accordance with Section 2.10 or the applicable provisions of such other instrument, free and clear of and without deduction for any and all present and future taxes (including, without limitation, value-added taxes and withholding taxes), levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto, excluding, in the case of the Lender, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which the Lender is organized or any political subdivision thereof and taxes imposed on its overall net income, and fr anchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of the Lender's Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under a Note or under any other instrument to be delivered hereunder to the Lender, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11), the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable l aw.

(b)In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other

excise or property taxes, charges or similar levies that arise from any payment made hereunder or under a Note or

under any other instrument to be delivered hereunder or from the execution, delivery or registration of, performing

under, or otherwise with respect to this Agreement or a Note or any other instrument to be delivered hereunder

(hereinafter referred to as "Other Taxes").

(c)The Borrower shall indemnify the Lender for and hold it harmless against the full amount of Taxes or

Other Taxes (including, without limitation, any taxes of any kind imposed or asserted by any jurisdiction on

amounts payable under this Section 2.11) imposed on or paid by the Lender or any Affiliate of the Lender in respect

of any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not

such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days

from the date the Bank makes written demand therefore.

(d)Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Bank, at its

address referred to in Section 7.02, the original or a certified copy of a receipt evidencing such payment. In the case

of any payment hereunder or under a Note or under any other documents to be delivered hereunder by or on behalf

of the Borrower, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall, at the

Lender's request, furnish, or cause the payor to furnish, to the Lender, an opinion of counsel acceptable to the Bank

stating that such payment is exempt from Taxes.

SECTION 2.12. Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely for working capital purposes to make capital expenditures to its operation in Colombia.

7

ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING

SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01. Section 2.01 of this Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied:

(a)There shall have occurred no Material Adverse Change 5 days prior to disbursement or

any material adverse change in the political, economic or financial condition of Colombia.

(b)There shall exist no action, suit, investigation, litigation or proceeding affecting the

Borrower or any of its Subsidiaries pending or threatened before any court, governmental agency or

arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the

legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions

contemplated hereby.

(c)All governmental and third party consents and approvals necessary in connection with the

transactions contemplated hereby (including, without limitation, exchange control approvals and any other

consents required or advisable from the Central Bank of Colombia) shall have been obtained (without the

imposition of any conditions that are not acceptable to the Lender) and shall remain in effect, and no law or

regulation shall be applicable in the reasonable judgment of the Lender that restrains, prevents or imposes

materially adverse conditions upon the transactions contemplated hereby.

(d)The Borrower shall have notified the Lender in writing as to the proposed Effective Date.

(e)The Borrower shall have paid all accrued fees and expenses of the Lender (including the

accrued fees and expenses of counsel to the Lender).

(f)On the Effective Date, the following statements shall be true and the Lender shall have

received a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating

that:

(i)           The representations and warranties contained in Section 4.01 are correct in all

material respects on and as of the Effective Date, and

(ii)         No event has occurred and is continuing that constitutes a Default.

(g)           The Lender shall have received on or before the Effective Date the following, each dated

such day, in form and substance satisfactory to the Lender:

(i)           Certified copies of the (A) resolutions of the Board of Directors of the Borrower

approving this Agreement and the Notes, (B) resolutions of the Board of Directors of PriceSmart, Inc. approving the Collateral Documents and the granting of the Collateral, (C) the Constituent Documents of the Borrower and PriceSmart, Inc. as in effect on the date the resolutions specified in clause (A) and (B) were adopted and (C) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes and the Collateral Documents, and certificates of the Secretary or an Assistant Secretary of the Borrower and PriceSmart, Inc. each certifying the absence of any change or amendment to the Constituent Documents of the Borrower or PriceSmart, Inc., as the case may be, since the date the resolutions specified in clause (A) and (B) were adopted.

(ii) Certificates of the Secretary or an Assistant Secretary of the Borrower and PriceSmart, Inc. certifying the names and true signatures of the officers of the Borrower and PriceSmart, Inc. authorized to sign this Agreement and the Notes and the Collateral Documents, as the case may be, and the other documents to be delivered hereunder.

(iii) A letter from the Process Agent indicating its acceptance of the appointment by the Borrower pursuant to Section 7.10 and of PriceSmart, Inc. under the Collateral Documents.

(h) The Collateral Documents shall have been duly executed and delivered to Citibank in form and substance satisfactory to Citibank and Citibank shall have received a valid and perfected first-priority security interest in the Collateral.

SECTION 3.02. Conditions Precedent to the Borrowing. The obligation of the Lender to make an Advance on the occasion of the Borrowing shall be subject to the conditions precedent that:

(a)the Effective Date shall have occurred and on the date of the Borrowing;

(b)the following statements shall be true (and each of the giving of the Notice of Borrowing and the

acceptance by the Borrower of the proceeds of the Borrowing shall constitute a representation and warranty by the

Borrower that on the date of the Borrowing such statements are true):

(i)           the representations and warranties contained in Section 4.01 are correct in all

material respects on and as of the date of the Borrowing, before and after giving effect to the Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and

(ii) no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes a Default;

(c)a the Lender shall have received on or before the date of the Borrowing a Note to the order of the

Lender and such other approvals, opinions or documents as the Lender may reasonably request; and

(d)PriceSmart, Inc. shall have executed the Collateral Documents and placed funds, for the amount of the

Advance, in a time deposit transaction with Citibank N.A. The tenor terms of the Advance shall not exceed the

agreed tenor for the time deposit.

ARTICLE IV REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrower.   The Borrower represents and warrants as follows:

(a)The Borrower is a corporation duly organized, validly existing and in good standing

under the laws of Colombia in the fashion of a "Sociedad Por Acciones Simplificada (SAS)", and has all

requisite corporate power and authority (including, without limitation, all governmental licenses, permits

and other approvals) to own, lease and operate its properties and to carry on its business as now conducted

and as proposed to be conducted.

(b)PriceSmart, Inc.   is a corporation duly organized, validly existing and in good standing

under the laws of the state of Delaware and has all requisite corporate power and authority (including,

without limitation, all governmental licenses, permits and other approvals) to own, lease and operate its

properties and to carry on its business as now conducted.

(a)

(c)The execution, delivery and performance by the Borrower of this Agreement and any

Note, and the execution, delivery and performance by PriceSmart, Inc. of each Collateral Document, and

the consummation of the transactions contemplated hereby and thereby, are within the Borrower's and

PriceSmart's corporate powers, have been duly authorized by all necessary corporate action, and do not

contravene (i) the Borrower's or PriceSmart's Constituent Documents or (ii) law or any contractual

restriction binding on or affecting the Borrower or PriceSmart, Inc.

(d)No authorization or approval or other action by, and no notice to or filing with, any

governmental authority or regulatory body or any other third party is required for the due execution,

delivery and performance by the Borrower of this Agreement or the Note and by PriceSmart, Inc of each

Collateral Document, except for the filings and registration of the foreign loan with the Colombian

authorities as provided in the Exchange Control, Commercial and tax regulations.

(e)This Agreement has been, and the Notes when delivered hereunder will have been, duly

executed and delivered by the Borrower. This Agreement is, and the Notes when delivered hereunder will

be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance

with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or

other laws affecting creditors' rights generally and subject to general principles of equity, regardless of

whether considered in a proceeding in equity or at law.

(f)Each Collateral Document has been duly executed and delivered by the PriceSmart, Inc.

and such documents create a valid and perfected first priority security interest in the Collateral.

(g)There is no pending or threatened action, suit, investigation, litigation or proceeding,

including, without limitation, any Environmental Action, affecting the Borrower or any of its Subsidiaries

before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material

Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement or any

Note or the consummation of the transactions contemplated hereby.

(h) The Borrower has filed, has caused to be filed or has been included in all material tax returns (national, departmental, local, municipal and foreign) required to be filed and has paid all material taxes, assessments, fees and other charges (including interest and penalties) due with respect to the years covered by such returns.

(i) Each of the Borrower and each of its Subsidiaries is in compliance with all applicable laws, ordinances, rules, regulations and requirements of all governmental authorities (including, without limitation, all governmental licenses, certificates, permits, franchises and other governmental authorizations and approvals necessary to the ownership of its properties or to the conduct of its business, Environmental Laws, and laws with respect to social security and pension fund obligations), in each case except to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

(j)           To the extent permitted by Colombian law, no income, stamp or other taxes (other than

taxes on, or measured by, net income or net profits) or levies, imposts, deductions, charges, compulsory loans or withholdings whatsoever are or will be, imposed, assessed, levied or collected by Colombia or any political subdivision or taxing authority thereof or therein either (i) on or by virtue of the execution or delivery of this Agreement or any Note or (ii) on any payment to be made by the Borrower pursuant to this Agreement or any Note.

(k) The Borrower is subject to civil and commercial law with respect to its obligations under this Agreement and any Note, and the execution, delivery and performance by the Borrower of this Agreement and any Note constitute private and commercial acts (jure gestionis acts) rather than public or governmental acts (jure imperii acts). None of the Borrower nor any of its respective properties has any immunity from jurisdiction of any court or from set-off or any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of Colombia.

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(1)           The Borrower's obligations under this Agreement and any Note constitute direct,

unconditional, unsubordinated and unsecured obligations of the Borrower and do rank and will rank pari passu in priority of payment and in all other respects with all other unsecured Debt of the Borrower.

(m) The Agreement and any Note are in proper legal form under the law of Colombia for the enforcement thereof against the Borrower under the law of Colombia (except for their official translation into Spanish); and to ensure the legality, validity, enforceability or admissibility in evidence of this Agreement or any Note in Colombia, it is not necessary that this Agreement or any Note or any other document be filed or recorded with any court or other authority in Colombia or that any stamp or similar tax be paid on or in respect of this Agreement or any Note (with the exception of registration of this facility before the Central Bank of Colombia {Banco cle la Republica).

(n) Neither the Borrower nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended.

(o) No information, exhibit or report furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or pursuant to the terms of this Agreement contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, in any material respect; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule.

(p)         The Borrower is Solvent.

ARTICLE V COVENANTS OF THE BORROWER

SECTION 5.01. Affirmative Covenants.   So long as the Advances shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will:

(a)Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all

material respects, with all applicable laws, rules, regulations and orders, such compliance to include,

without limitation, compliance with Environmental Laws, except to the extent failure to comply would not

reasonably be expected to have a Material Adverse Effect.

(b)Payment of Taxes,.   Pay and discharge, and cause each of its Subsidiaries to pay and

discharge, before the same shall become delinquent, all material taxes, assessments and governmental

charges or levies imposed upon it or upon its property.

(c)Preservation of Corporate Existence, Etc.  Preserve and maintain, and cause each of its

Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory), permits,

approvals, licenses, privileges and franchises; provided, however, that the Borrower and its Subsidiaries

may consummate any merger or consolidation permitted under Section 5.02(a) and provided further that

neither the Borrower nor any of its Subsidiaries shall be required to preserve any right or franchise if the

Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no

longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and

that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the

Lender.

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(d)Visitation Rights.   At any reasonable time and from time to time, permit the Lender or

any agents or representatives thereof, to examine and make copies of and abstracts from the records and

books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the

affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or

directors and with their independent certified public accountants; provided, however, (i) any such

inspections shall be at the sole cost and expense of the Lender, and (ii) Lender shall not conduct more than

two such inspections in any fiscal year.

(e)Keeping of Books.   Keep, and cause each of its Subsidiaries to keep, proper books of

record and account, in which full and correct entries in all material respects shall be made of all financial

transactions and the assets and business of the Borrower and each such Subsidiary in accordance with

generally accepted accounting principles in effect from time to time.

(f)Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries

to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good

working order and condition, ordinary wear and tear excepted, except to the extent failure to so maintain

and preserve could not reasonably be expected to have a Material Adverse Effect.

(g)Transactions with Affiliates.  Conduct, and cause each of its Subsidiaries to conduct, all

transactions otherwise permitted under this Agreement with any of their Affiliates on terms that are fair and

reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable

arm's-length transaction with a Person not an Affiliate.

(h)         Reporting Requirements. Furnish to the Lender:

(i) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles and certificates of the chief financial officer of the Borrower as to compliance with the terms of this Agreement

(ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, containing Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an opinion acceptable to the Lender by Ernst and Young or other independent public accountants acceptable to the Lender as soon as available and in any event no later than 90 days after the end of each fiscal year of the Borrower, forecasts prepared by management of the Borrower, in form satisfacto ry to the Lender, of balance sheets, income statements and cash flow statements on a monthly basis for the fiscal year following such fiscal year then ended and on an annual basis for each fiscal year thereafter until the Maturity Date;

(iii) as soon as possible and in any event within five days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;

(iv) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(g);

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(v)         such other information respecting the Borrower or any of its Subsidiaries as the Lender may from time to time reasonably request

(g) -Registration before the Colombian Central Bank. Within five (5) days from the Effective Date, register the facility before the Colombian Central Bank {Banco cle la Republica) and promptly thereafter send the relevant proof to Citibank.

SECTION 5.02. Negative Covenants. So long as the Advances shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will not:

(a)Mergers, Etc.    Merge or consolidate with or into any Person, or permit any of its

Subsidiaries to do so, except that: (i) any Subsidiary of the Borrower may merge or consolidate with or into

any other Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower may merge into the Borrower,

and (iii) the Borrower or any Subsidiary of the Borrower may otherwise merge consolidate with or into any

Person so long as such merger or consolidation has been approved by Citibank in writing, which approval

shall not be unreasonably withheld, provided, in each case, that no Default shall have occurred and be

continuing at the time of such proposed transaction or would result therefrom.

(b)Amendment of Constituent Documents.    Amend its Constituent Documents in any

respect which would reasonably be expected to have a Material Adverse Effect.

SECTION 5.03. Financial Covenants. So long as the Advances shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will:

(a) Equity. Represents funds contributed by the owners (stockholders) plus retained earnings or minus the accumulated losses, of not less than the amount set forth below for each period set forth below:

Ending On

12/31/2010	USD$	1,000,000
12/31/2011	USD$	1,000,000
12/31/2012	USD$	2,000,000
12/31/2013	USD$	2,000,000
12/31/2014	USD$	2,000,000
12/31/2015	USD$	2,000,000

Equity

(b) Leverage Ratio. Maintain a ratio of Consolidated total Debt to Paid in Capital (Represents funds contributed by the owners (stockholders) of not greater than the amount set forth below for each period set forth below:

Ending On

Ratio

12/31/201010

12/31/201110

12/31/201210

12/31/201310

12/31/201410

12/31/201510

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ARTICLE VI EVENTS OF DEFAULT

SECTION 6.01. Events of Default.   If any of the following events ("Events of Default") shall occur and be continuing:

(a)The Borrower shall fail to pay any principal of, or interest on, an Advance, or make any

other payment of fees or other amounts under this Agreement or any Note, in each case, when the same

becomes due and payable and, in the case of any such failure, other than the failure to pay principal, such

failure shall remain unremedied for a period of five (5) days after written notice thereof shall have been

given to the Borrower by the Lender; or

(b)Any representation or warranty made by the Borrower herein or by the Borrower (or any

of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect

when made; or

(c)(i) The Borrower shall fail to perform or observe any term, covenant or agreement

contained in Section 5.01(d), (e), (h) or (j), 5.02 or 5.03, or (ii) the Borrower shall fail to perform or

observe any other term, covenant or agreement contained in this Agreement on its part to be performed or

observed if such failure shall remain unremedied for thirty (30) or more days after written notice thereof

shall have been given to the Borrower by the Lender; or

(d)The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or

interest on any Debt that is outstanding in a principal or notional amount of at least U.S. $500,000 (or its

equivalent in other currencies) in the aggregate (but excluding Debt outstanding hereunder) of the

Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by

scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall

continue after the applicable grace period, if any, specified in the agreement or instrument relating to such

Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to

any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or

instrument, if the effect of such event or condition is to accelerate, the maturity of such Debt; or any such

Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a

regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay,

redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated

maturity thereof; or

(e)The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts

become due, or shall admit in writing its inability to pay its debts generally, or shall make a general

assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or

any of its Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up,

reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law

relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for

relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial

part of its property and, in the case of any such proceeding instituted against it (but not instituted by it),

either such proceeding shall remain undismissed or unstayed for a period of 30 or more days, or any of the

actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or

the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of

its property) shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to

authorize any of the actions set forth above in this subsection (e); or

(f)Judgments or orders for the payment of money in excess of U.S. $500,000 (or its

equivalent in other currencies) in the aggregate shall be rendered against the Borrower or any of its

Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such

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judgment or order or (ii) there shall be any period of 10 or more consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(g) Any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 10 or more consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(h) The obligations of the Borrower under this Agreement and any Note fail to rank at least pari passu with all other unsecured Debt of the Borrower; or

(i) Any Collateral Document after the date hereof shall cease for any reason (other than pursuant to the terms thereof) to create a valid and perfected first priority security interest in the Collateral;

(j)           Any provision of this Agreement or any Note shall cease to be valid and binding on or

enforceable against the Borrower, or the Borrower shall so assert or state in writing, or the obligations of the Borrower under this Agreement or any Note shall in any way become illegal; or

(k) Either (i) any authority asserting or exercising governmental or police powers in Colombia shall take any action, including a general moratorium, canceling, suspending or deferring the obligation of the Borrower to pay any amount of principal or interest payable under this Agreement or any Note or preventing or hindering the fulfillment by the Borrower of its obligations under this Agreement or any Note or having any effect on the currency in which the Borrower may pay its obligations under this Agreement or any Note or on the availability of foreign currencies in exchange for Colombian Pesos (including any requirement for the approval to exchange foreign currencies for Colombian Pesos) or otherwise or (ii) the Borrower shall, voluntarily or involuntarily, participate or take any action to participate in any facility or exercise i nvolving the rescheduling of the Borrower's debts or the restructuring of the currency in which the Borrower may pay its obligations; or

(1)           Any authority asserting or exercising governmental or police powers in Colombia or any

Person acting or purporting to act under such authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any material portion of the property of the Borrower; or

(m)        Change of Control of the Borrower;

then, and in any such event, the Lender (i) may declare its obligation to make the Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) may, by notice to the Borrower, declare any Note, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under clause (e) above, (A) the obligation of the Lender to make the Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE VII MISCELLANEOUS

SECTION 7.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any Note, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same

15

shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

SECTION 7.02. Notices. Etc. All notices and other communications provided for hereunder shall be in writing and mailed (by international courier), telecopied, telegraphed, telexed or delivered, if to the Borrower, at its address at Calle 67 No.7-35, Oficina 1104, Attention: Luis Fernando Gallo (CEO) / Zuleta y Abogados; if to the initial Lender, at its Lending Office specified opposite its name on the signature pages below; if to any other Lender, at its Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; or, as to the Borrower or the Lender, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when mailed, telecopied, telegraphed or telexe d, be effective when deposited in the mails, telecopied, delivered to the telegraph company or confirmed by telex answerback, respectively. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or any Note or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.

SECTION 7.03. No Waiver; Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

SECTION 7.04. Costs and Expenses, (a) The Borrower agrees to pay on demand all reasonable costs and expenses of the Lender in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, any Note and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the reasonable fees and expenses of counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay on demand all reasonable costs and expenses of the Lender, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, any Note and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Lender in connection with the enforcement of rights under this Section 7.04(a).

(b)The Borrower agrees to indemnify and hold harmless the Lender and each of its Affiliates and

their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all

claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of

counsel) incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in

connection with or by reason of (including, without limitation, in connection with any investigation, litigation or

proceeding or preparation of a defense in connection therewith) (i) any Note, this Agreement, any of the transactions

contemplated herein or the actual or proposed use of the proceeds of the Advances or (ii) the actual or alleged

presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental

Action relating in any way to the Borrower or any of its Subsidiaries, except to the extent such claim, damage, loss,

liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted

from such Indemnified Party's gross negligence or willful misconduct.  In the case of an investigation, litigation or

other proceeding to which the indemnity in this Section 7.04(b) applies, such indemnity shall be effective whether or

not such investigation, litigation or proceeding is brought by the Borrower, its directors, equityholders or creditors or

an Indemnified Party or any other Person, whether or not any Indemnified Party is otherwise a party thereto and

whether or not the transactions contemplated hereby are consummated

(c)The Borrower and Lender agree not to assert any claim for special, indirect, consequential or

punitive damages against the other party or any of such other party's Affiliates, respective directors, officers,

employees, attorneys or agents, on any theory of liability arising out of or otherwise relating to the Note, this

Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the

Advance.

(d)If any payment of principal of an Advance is made by the Borrower to or for the account of the

Lender other than on the last day of an Interest Period for the Advance, as a result of a payment pursuant to Section

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2.07 or 2.09, acceleration of the maturity of any Note pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by the Lender, pay to the Lender any amounts required to compensate the Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund or maintain the Advance.

(e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.08, 2.11, 7.04 and 7.08 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any Note.

SECTION 7.05. Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and any Note held by the Lender, whether or not the Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Lender and its Affiliates may have.

SECTION 7.06. Binding Effect. This Agreement shall become effective (other than Section 2.01, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Lender, and thereafter shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender.

SECTION 7.07. Assignments and Participations, (a) The Lender may assign to one Person all of its rights and obligations under this Agreement (including, without limitation, all of its Commitment, the Advances owing to it and the Note or Notes held by it); provided that the Lender notifies in writing to the Borrower of any such assignment and the parties to each such assignment shall execute and deliver an Assignment and Acceptance, together with any Note subject to such assignment. Upon such execution and delivery, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, hav e the rights and obligations of the Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.08, 2.11 and 7.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement and such Lender shall cease to be a party hereto.

(b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligatio ns under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon such assigning Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; and (v) such assignee agrees that it will

17

perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as the Lender.

(c)Within five Business Days after its receipt of notice of an assignment hereunder and any Note or

Notes subject to such assignment, the Borrower, at its own expense, shall execute and deliver to the Lender assignee

in exchange for each surrendered Note a new Note to the order of such assignee in an amount equal to the

outstanding amount of the Notes assumed by it pursuant to such Assignment and Acceptance.  Such new Note or

Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or

Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially

the form of Exhibit A hereto.

(d)The Lender may sell participations to one or more banks or other entities (other than the Borrower

or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without

limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided,

however, that (i) the Lender's obligations under this Agreement (including, without limitation, its Commitment to

the Borrower hereunder) shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties

hereto for the performance of such obligations, (iii) the Lender shall remain the holder of any such Note for all

purposes of this Agreement, (iv) the Borrower shall continue to deal solely and directly with the Lender in

connection with the Lender's rights and obligations under this Agreement and (v) no participant under any such

participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any

Note, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver

or consent would reduce the principal of, or interest on, the Notes or any other amounts payable hereunder, in each

case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or

interest on, the Notes or any other amounts payable hereunder, in each case to the extent subject to such

participation.

(e)The Lender may, in connection with any assignment or participation or proposed assignment or

participation pursuant to this Section 7.07, disclose to the assignee or participant or proposed assignee or participant,

any information relating to the Borrower furnished to the Lender by or on behalf of the Borrower.

(f)Notwithstanding any other provision set forth in this Agreement, the Lender may at any time

create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the

Advance owing to it and any Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A

of the Board of Governors of the U.S. Federal Reserve System.

SECTION 7.08. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.

SECTION 7.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 7.10. Jurisdiction; Waiver of Immunities, (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any Note, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(b)         The Borrower hereby irrevocably appoints CT Corporation System (the "Process Agent"), with an office on the date hereof at 111 Eighth Avenue, 13th Floor, New York, New York 10011, United States, as its agent

18

to receive on behalf of the Borrower and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Borrower in care of the Process Agent at the Process Agent's above address, and the Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf. As an alternative method of service, the Borrower also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 7.02.

(c)Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may

legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit,

action or proceeding arising out of or relating to this Agreement or any Note in any New York State or federal court.

Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an

inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)To the extent that the Borrower has or hereafter may acquire any immunity from jurisdiction of

any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in

aid of execution, execution or otherwise) with respect to itself or its property, the Borrower hereby irrevocably and

unconditionally waives such immunity in respect of its obligations under this Agreement and any Note and, without

limiting the generality of the foregoing, agrees that the waivers set forth in this subsection (d) shall have the fullest

scope permitted under the Foreign Sovereign Immunities Act of 1976 of the United States and are intended to be

irrevocable for purposes of such Act.

(e)Nothing in this Section 7.10 shall affect the right of the Lender to serve legal process in any other

manner permitted by law or affect the right of the Lender to bring any action or proceeding against the Borrower or

its property in the courts of other jurisdictions, including, without limitation, the courts sitting in Colombia.

SECTION 7.11. Judgment Currency. (a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under any Note in U.S. Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Lender could purchase U.S. Dollars with such other currency in New York City on the Business Day preceding that on which final, nonappealable judgment is given.

(b) The obligations of the Borrower in respect of any sum due to the Lender hereunder or under the Notes shall, notwithstanding any judgment in a currency other than U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Lender of any sum adjudged to be so due in such other currency, the Lender may, in accordance with normal, reasonable banking procedures, purchase U.S. Dollars with such other currency. If the amount of U.S. Dollars so purchased is less than the sum originally due to the Lender, in U.S. Dollars, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender against such loss.

SECTION 7.12. Waiver of Jury Trial. Each of the Borrower and the Lender hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or any Note or the actions of the Lender in the negotiation, administration, performance or enforcement thereof.

19

IN WITNESS WHEREOF, the parties thereunto duly authorized, as of the

PRICES

hbreto have caused this Agreement to be executed by their respective officers date first above written.

Bvr I/uis Fernando Gallo A\Xt:

Lender

Lending Office 399 Park Avenue New York, NY 10043 United States of America

CITIBANK, N.A.,

By: Title:

20

PROMISSORY NOTE

U.S.$8,000,000USD                                                                           Dated: November 1st. 2010

FOR VALUE RECEIVED, the undersigned, Price Smart Colombia, S.A.S, a Colombian corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of Citibank N.A (the "Lender") for the account of its Lending Office (as defined in the Credit Agreement referred to below) the principal amount of US $8,000,000 owing to the Lender by the Borrower pursuant to the Credit Agreement dated as of November 1st, 2010 between the Borrower and the Lender (as amended or modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined) on November 3rd, 2015 the "Maturity Date".

The Borrower promises to pay interest on the unpaid principal amount of the Advance from the date of such Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement.

Both principal and interest are payable in lawful money of the United States to the Lender, at Citibank N.A New York, Acct. Number: 00167679, Swift Code: CITIUS33, ABA: 021000089 in same day funds. The Advance owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower under this Promissory Note.

This Promissory Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of the Advance by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from such Advance being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.

PriceSmart Colombia, S.A.S

By: Luis Fernando Gallo Title:

ADVANCE AND PAYMENTS OF PRINCIPAL

Date (M/D/Y)	Amount of Advance	Amount of Principal Paid or Prepaid	Unpaid Principal Balance	Notation Made By
11/3/2010	$8,000,000.00	$0	$8,000,000.00
5/3/2011	$0	$0	$8,000,000.00
11/3/2011	$0	$0	$8,000,000.00
5/3/2012	$0	$0	$8,000,000.00
11/6/2012	$0	$0	$8,000,000.00
5/3/2013	$0	$0	$8,000,000.00
11/5/2013	$0	$0	$8,000,000.00
5/5/2014	$0	$0	$8,000,000.00
11/3/2014	$0	$0	$8,000,000.00
05/4/2015	$0	$0	$8,000,000.00
11/3/2015	$0	$8,000,000	$8,000,000.00

NOTICE OF BORROWING

Citibank, N.A., acting through its international banking facility,

as Lender under

the Credit Agreement

referred to below

399 Park Avenue

New York, NY 10043

Attention: Valentina Antill                                                                           November 2nd, 2010

Ladies and Gentlemen:

The undersigned, PriceSmart Colombia, S.A.S, refers to the Credit Agreement, dated as of November 1st, 2010 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), between the undersigned and the Lender, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests the Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to the Borrowing (the "Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:

(i)           The Business Day of the Proposed Borrowing is November 3rd, 2010.

(ii)         The aggregate amount of the Proposed Borrowing is USD$8,000,000.

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(A)the representations and warranties contained in Section 4.01 of the Credit Agreement are

correct, before and after giving effect to the Proposed Borrowing and to the application of the proceeds

therefrom, as though made on and as of such date; and

(B)no event has occurred and is continuing, or would result from such Proposed Borrowing

or from the application of the proceeds therefrom, that constitutes a Default.

Very truly yours, PriceSmart Colombia, S.A.S

By: Luis Fernando Gallo Title:

EX-10.4

CONFIRMATION

Date:                    Amended as of November 24, 2010. This Confirmation supersedes and replaces all prior communication

between the parties hereto with respect to the Transaction referenced below.

To:	PnceSmart, Inc
Attn:	Mr. Atul Patel
Email:	Senior Vice President, Treasurer
Phone:	858404-8831
Fax:	858-404-8838

Address:                    9740 Scranton Road, San Diego, CA 92121

From:                     Citibank, N.A., New York ("Citibank")

Confirmations Unit Fax:      646-291-3965 Email: ec|uitvandotherderivativesconfirms@citigroup.com

Transaction Reference No.:        E10-96926-D

We hereby confirm the terms of the following Deposit under the Account Agreement dated November 1, 2010 (the "Agreement") between PriceSmart, inc (the "Depositor") and Citibank N.A., New York (the "Bank").

We refer to the Agreement. Capitalized terms used in this Confirmation and not defined herein are as defined in the Agreement and, unless expressly modified herein, all provisions contained in the Agreement shall govern this Confirmation. The Agreement, together with this Confirmation, shall constitute a single agreement between the parties. In the event of any inconsistency between the terms and definitions of this Confirmation and the Agreement, the terms and definitions of this Confirmation shall prevail.

Reference is made to the US.S 16,000,000.00 Credit Agreement dated as of November 1,2010 between PriceSmart, Colombia, S AS as Boirower and Citil5arik,NA as Lender (the''Credit Agreement"). Capitalized terms used but not defined herein shall have the meaning given such terms under the Credit Agreement

WHEREAS, the Depositor understands and agrees to the terms set forth herein, the Information Statement and in the Agreement:

This Confirmation certifies that the Depositor agreed to place a Deposit with Citibank subject to the following terms and conditions:

Transaction Date:                                           November 2, 2010

Deposit Date:                                                  November 3, 2010

Maturity Date:                                                November 3, 2015, or if such date is not a Business Day,

the next succeeding Business Day.

Deposit Amount:                                                  USD 8,000,000

Citi

Interest Rate:

Spread:

LIBOR:

Base Rate:

LIBOR plus the Spread; provided however if pursuant to Section 2.05 of the Credit Agreement the Lender determines that the Eurodollar Rate for any Interest Period will not adequately reflect the cost to the Lender of making, funding or maintaining its Advances for such Interest Period, Citibank shall forthwith so notify the Depositor. During the 15 days next succeeding the giving of such notice, Citibank and the Depositor shall negotiate in good faith in order to arrive at a mutually satisfactory Interest Rate which shall be applicable during such Calculation Period. If within such 15-day period, Citibank and the Depositor agree in writing upon an alternative Interest Rate, such rate shall be effective from the commencement of such Calculation Period. If Citibank and the Depositor fail to agree upon such an alternative interest rate wi thin such 15-day period, the interest rate during such Calculation Period shall be at the Base Rate.

1.6%

For each Calculation Period, an interest rate per annum determined by Citibank at approximately 11:00 A.M. (London time) on the date that is two Business Days before the start of the Calculation Period by reference to the British Bankers' Association Interest Settlement Rate for Eurodollar deposits (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by Citibank which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Calculation Period.

On any day, a simple rate per annum equal to the sum of the the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low prime rate are therein reported), and the Base Rate shall change without notice with each change in such prime rate as of the date such change is reported for that day. Without notice to Depositor or anyone else, the Base Rate shall automatically fluctuate upward and downward as and in the amount by which the prime rate fluctuates.

Interest Amount: Interest Payment Dates: Calculation Period:

Day Count Fraction: Maturity Amount: Calculation Agent:

The Deposit Amount multiplied by the Interest Rate multiplied by the Day Count Fraction.

Each May 3rd and November 3rd, beginning on May 3, 2011 and ending on the Final Payment Date.

Each period from, and including on Interest Payment Date to, but excluding the next Interest Payment Date, provided that (a) the initial Calculation Period shall begin on the Deposit Date and (b) the final Calculation Period shall end on the Maturity Date.

The actual number of days in the Calculation Period divided by 360. Deposit Amount Citibank N.A., New York

2/5

Deal No: 9198667, Deal Alias: E10-96926-D, ID: 7458212

Citi

Business Days:                                                  New York

Governing Law:                                                  New York

II.     Early Termination.

The Depositor may request prepayment of this Deposit, in amounts not less than USD $1,000,000, by providing Citibank with seven (7) business days written notice; provided however that any such prepayment shall be subject to any pledge or other agreement in place in between the Depositor and Citibank. Upon the Depositor's request for an early withdrawal, the Maturity Amount shall be reduced by the amount withdrawn as of the date such amounts are paid to the Depositor.

III.      Miscellaneous.

The Depositor certifies that the representations and warranties made in the Agreement were true and correct on and as of Transaction Date of this Deposit as if such representations and warranties were made as of such date. EN PARTICULAR, THE DEPOSITOR UNDERSTANDS THAT OBLIGATIONS OF THE BANK TO THE DEPOSITOR WITH RESPECT TO THIS DEPOSIT WILL BE ENTITLED TO THE BENEFIT OF DEPOSIT INSURANCE BUT THAT SUCH AMOUNT MAY BE LESS THAT THE DEPOSIT AMOUNT AND THAT SUCH OBLIGATIONS WILL NOT BE GUARANTEED BY ANY AFFILIATE OF THE BANK, ANY GOVERNMENTAL AGENCY OR ANY OTHER PERSON OR ENTITY.

OTHER THAN WITH RESPECT TO LIENS GRANTED IN ACCORDANCE WITH THE PLEDGE AGREEMENT, THIS DEPOSIT IS NON-TRANSFERABLE AND NON-NEGOTIABLE AND NEITHER IT NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, SOLD, PLEDGED OR OTHERWISE REHYPOTHECATED WITHOUT CITIBANK'S PRIOR WRITTEN CONSENT, AND ANY SUCH TRANSFER, SALE, PLEDGE OR REHYPOTHECATION ATTEMPTED TO BE MADE WITHOUT SUCH PRIOR CONSENT SHALL BE VOID AND OF NO FORCE OR EFFECT.

3/5                   Deal No: 9198667, Deal Alias: E10-96926-D, ID: 7458212

cm

Citi

PAYMENT INSTRUCTION:

Citibank London

Swift: CITIGB2L

A/C of: Citibank NA, NY

Swift: CITIUS33

Account No: 944831

ATTN.: Deborah Montperous

Phone Number: 212-615-8338

All payments to be paid by Citibank to the Depositor under the Agreement will be paid to the Depositor's account as follows:

PAYMENT INSTRUCTION:

rN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date and year first above written.

Kindly acknowledge receipt of this confirmation by signing and returning the attached copy of this confirmation within 24 hours to the attention of our Control Department, fax # (646) 291-3965. Hard copies should be returned to Citibank, N.A., 388 Greenwich St, 1 lth Floor, New York, NY 10013, Attention: Confirmation Unit.

Yours sincerely,

CITIBANK, N.A., New York

Santos, David

Vice President

Confirmed on the date first above written:

Pricesmart Incorporated

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Deal No: 9198667, Deal Alias: E10-96926-D, ID: 7458212

CitiCltl

Exhibit B

Risk Disclosure for Citibank, N.A. ("Citibank") Time Deposit ("Deposit")

The following discussion of risks attendant to the Deposit is subject to the terms of the DEPOSIT itself and should be read in conjunction with the Deposit. Capitalized terms used and not otherwise defined herein have the meanings given them in the Deposit Account Agreement.

Citibank has entered into the Deposit with you on the understanding that (1) you have sufficient knowledge, experience and professional advice to make your own evaluation of the merits and risks of an investment of this type and (2) you are not relying on Citibank or any affiliate of Citibank for any information, advice or recommendations of any sort except for the accuracy of the specific factual information about the terms of the Deposit. Due to the proprietary nature of this investment, please consider it to be confidential.

This Deposit may leverage exposures to interest rates, indices or the prices of certain securities and, as a result, any changes in the value of the underlying securities, prices, indices or interest rates may cause proportionally greater (positive and negative) movements in the value of the Deposit, pose convexity or gamma risk, volatility risk, time decay (theta) risk, basis risk, correlation risk, amortization risk and/or prepayment risk, any or all of which may affect the payments received or made by you and could result in loss to you.

THE DEPOSIT WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT EXCEPT PURSUANT TO AN EXEMPTION UNDER THE ACT AND IN ACCORDANCE WITH THE CONDITIONS SET FORTH IN THE DEPOSIT.

OTHER THAN WITH RESPECT TO LIENS GRANTED IN ACCORDANCE WITH THE PLEDGE AGREEMENT, THE DEPOSIT IS NON-TRANSFERABLE AND NON-NEGOTIABLE AND NEITHER IT NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, SOLD, PLEDGED OR OTHERWISE REHYPOTHECATED WITHOUT CITIBANK'S PRIOR WRITTEN CONSENT, AND ANY SUCH TRANSFER, SALE, PLEDGE OR REHYPOTHECATION ATTEMPTED TO BE MADE WITHOUT SUCH PRIOR CONSENT SHALL BE VOID AND OF NO FORCE OR EFFECT.

5/5                   Deal No: 9198667, Deal Alias: E10-96926-D, ID: 7458212

EX-10.5

PROMISSORY PURCHASE AGREEMENT

The undersigned, namely, on the one hand, ARNOLD ERNESTO GÓMEZ MENDOZA, male, of legal age, identified with Identity Card Number 19,472,285 of Bogotá, acting in his capacity as legal representative of CEMENTOS ARGOS, S.A., who is acting in his capacity as legal representative of CEMENTOS ARGOS, S.A., and from here on in for all the effects of this agreement shall be referred to as ARGOS; a company identified with legal entity TIN 890,100,251, AS CERTIFIED IN THE EXISTENCE AND LEGAL REPRESENTATION CERTIFICATE ISSUED BY THE Chamber of Commerce of Barranquilla and that is included as an integral part of this Agreement as ANNEX 1 – EXISTENCE AND LEGAL REPRESENTATION CERTIFICATES, and who from here on in and for all the effects of this Agreement shall be referred to as the PROMISSORY SELLER; and, on the other hand, RODRIGO C ALVO GONZÁLEZ, identifying himself with the data that appears below his signature, acting in his capacity as special proxy for PRICESMART COLOMBIA SAS, a business corporation identified with TIN: 900,319,753-3, duly established and organized in accordance with the regulations of the Republic of Colombia as certified in the existence and legal representation certificate issued by the Chamber of Commerce of Bogotá and which is included as an integral part of the Agreement as ANNEX 1- EXISTENCE AND LEGAL REPRESENTATION CERTIFICATES, and who from here on in and for all the effects of this Agreement shall be referred to as THE PROMISSORY BUYER and who along with the PROMISSORY SELLER shall be referred to as THE PARTIES, hereby enter into a Promissory Real Estate Purchase Agreement (from here on in the “AGREEMENT”) which shall be governed by the clauses contained in such and by the applicable legal provisions, subject to the following:

CONSIDERATIONS:

1.   THE PROMISSORY SELLER is the owner of two plots of land of a large extension referred to as: (i) “LOT D-2”, identified with real estate registration number 040-390709 of the Office of Public Instruments of Barranquilla, with an area measuring 65241.10 M2; and (ii) “PAVAS-MOLINA LOT”, identified with real estate registration folio 040-401515 of the Office of Public Instruments of Barranquilla with an area measuring 390 hectares and 7,684.88 m2. Such lots shall be joined together for the development of the Portal de Alejandría Urbanization, from which a part of the land referred to as Lot C-2 shall be detached and shall have a total area of approximately 19,503 m2 and shall be delimited by the boundaries specified in ANNEX 2- BOUNDARIES AND MEASUREMENTS PROJECTED FOR LOT C-2, attached to this document and which are described below (from here on in referred to as the “Property”): North East: between point A and point B in  straight line and with a longitude of 146.90 meters and which adjoins the projection of the future Roadway 55, in front of the Argos terrain; South West: Between point C and point D in a slightly rough line and with a longitude of 16.90 meters and adjoins Roadway 53 in the middle, in front of Paseo de la Castellana V; North West: Between point A and point D in a straight line and with a longitude of 121.30 meters and adjoining the Argos terrain; South East: Between point B and point C in a straight line and with a longitude of 120.20 meters and adjoining the future prolongation of 106 Street.

2.   On the date of the signing of this AGREEMENT, the PROMISSORY SELLER, is preparing the urbanization license for the construction of the Portal de Alejandría Project and the detachment of the lots conforming such, including the real property promised for sale, which shall be detached from the larger lot.

3.   THE PROMISSORY BUYER is interested in acquiring the real property from THE PROMISSORY SELLER, for the effects of developing a Real Estate Project on such property, which shall be basically destined to open a business establishment (from here on in referred to as the “Project” and /or PriceSmart Barranquilla Project or simply PriceSmart Barranquilla).

4.   THE PROMISSORY SELLER states to be aware of the Project that the PROMISSORY BUYER is interested in building on the real property promised for sale; as well as of the needs and requirements in terms of district authorizations and considers that the Project with the specifications required by THE PROMISSORY BUYER can be developed on the Real Property object of this AGREEMENT.

   In view of the above considerations, THE PARTIES have decided to enter into this Promissory Purchase AGREEMENT, which terms and conditions are established below:

CLAUSES

FIRST: OBJECT: THE PROMISSORY SELLER, through this document, promises to transfer ownership in favor of THE PROMISSORY BUYER, who in turn promises to acquire such property, in the same way, with the full right of ownership and possession held and exercised by THE PROMISSORY SELLER on the Real Property which initial description is contained in the map that is attached as ANNEX 2 and described in Consideration 1 of this Agreement. The Real Property shall be conveyed free of limitations to the right of ownership or possession and free of mortgages, civil suits, census, lease through a public deed, antichresis, embargo or conditions subsequent affecting ownership, such as is established in the Ninth Clause of this AGREEMENT.

First Paragraph: The Real Property object of this AGREEMENT is promised and transferred as specified, and its sale includes all those constructions and improvements existing or that shall further on exist, as per the specifications and terms of delivery contained in the Fifth Clause of this AGREEMENT and in accordance with the Urbanization license that THE PROMISSORY SELLER shall process for the development of the Portal de Alejandría Urbanization. For such effect, the areas shall be verified by both parties before the signing of the public deed, by means of a land survey that shall establish the actual extension of the Real Property, carried out by a Surveyor that shall be chosen by mutual agreement between THE PARTIES.

THIRD: PRICE AND PAYMENT METHOD: THE PARTIES have agreed that the price of the Real Property object of this Promissory Purchase Agreement shall be ELEVEN THOUSAND SEVEN HUNDRED AND ONE MILLION, EIGHT HUNDRED THOUSAND PESOS (11,701,800.00 pesos) in legal currency of Colombia, at a rate of SIX HUNDRED THOUSAND PESOS (600,000) for each square meter. In accordance with the before stated, in the event that that total area of the Real Property is less than that set forth in Consideration 1 of this AGREEMENT, the price shall be adjusted in accordance with the actual area that is actually received. Without prejudice to the before stated, in the event that the total area of the Real Property is reduced by more than two point five percent (2.5%) of 19,503 m2, that is to say, that it measures less than 19,015 m2 or more than 19,990m2, THE PROMISSORY BUYER may, at its entire discretion, unilaterally terminate this AGREEMENT, without giving way to indemnification in favor of the PROMISSORY SELLER and thus the payment received on this date must be returned to THE PROMISSORY BUYER, within a period of thirty (30) days following the notice of such decision, at the latest.

The price of the Real Property shall be paid by THE PROMISSORY BUYER as follows:

3.1 The sum of ONE MILLION PESOS (100,000,000), which shall be paid within five (5) days following the signing of this AGREEMENT, sum that the PROMISSORY SELLER shall state to have received from THE PROMISSORY BUYER, once the latter delivers the respective confirmation of the transfer of the money. Payment must be made to checking account No. 005-244228-40 of BANCOLOMBIA held in the name of CEMENTOS ARGOS S.A., TIN: 890,100,251-0.

3.2 The sum of SEVEN THOUSAND NINE HUNDRED MILLION PESOS (7,9000,000,000 on the date of the granting of the Public Deed of Sale and the material delivery of the real estate property through which this AGREEMENT is fulfilled.

3.3 The sum of THREE THOUSAND SEVEN HUNDRED AND ONE MILLION EIGHT HUNDRED THOUSAND PESOS (3,701,800,000) ON December fifteen (15), two thousand and ten (2010) as long as all the primary and partial urbanization works listed in the Fifth Clause have been fully and duly concluded. In the event that such works have not been concluded in accordance with that stated in the Fifth Clause, this sum shall be withheld until the works are concluded.

First Paragraph: The second and third payments of the price agreed on in this Third Clause shall be made on the dates agreed on, with a Cashier’s check made out to CEMENTOS ARGOS S.A.

Second Paragraph: Cancellation Provision- When all the requirements for the PROMISSORY SELLER to receive the payment contained under number 3.3 of this Clause have been fulfilled and THE PROMISSORY BUYER does not pay on the corresponding date, this transaction shall be deemed to be declared as extinguished in its own right; and THE PROMISSORY SELLER may require THE PROMISSORY BUYER to comply with or unwind this transaction, in which event the ownership of the lot would return to the SELLER, discounting the value of the received price, the sum set forth for the concept of earnest money, the expenses incurred in for the purposes of the deed and shall proceed to return the remaining balance in favor of the PROMISSORY BUYER, within a period of thirty (30) calendar days, starting as of the time that it notifies of its decision to resolve.

FOURTH: SECURITY DEPOSITS: THE PARTIES, in mutual agreement, have decided to include security deposits in this Promissory Purchase Agreement, which shall permit the PROMISSORY BUYER the right of redemption from executing the business at any time, paying the value set forth further on, without this being able to be deemed as noncompliance on its part. THE PARTIES have established that the right of redemption and payment of the security deposits shall proceed as follows:

4.1   If the right of redemption is exercised within thirty (30) days following the signing of this Promissory Purchase AGREEMENT, the value of the security deposit shall be the sum of ONE HUNDRED MILLION PESOS (100,000,000) and

4.2   If the possibility of the right to redemption is exercised thirty (30) days after the signing of this AGREEMENT, the value of the security deposits shall be the sum of FIVE HUNDRED MILLION PESOS (500,000,000). Considering that THE PROMISSORY is already receiving the sum of ONE HUNDRED MILLION PESOS (100,000,000) upon the signing of this agreement, this sum shall be considered to be credited to the value of the security deposits and THE PROMISSORY BUYER shall have thirty (30) calendar days, starting as of the same day on which the right of redemption begins, to pay the unpaid difference of the agreed on value.

Paragraph: Way in with to exercise the Right of Redemption.- THE PROMISSORY BUYER shall have the right to redemption regarding this agreement for any reason; without needing to justify such redemption and by providing a simple written notice to the PROMISSORY SELLER, in the terms set forth in the Sixteenth Clause of this AGREEMENT. In the event that the PROMISSORY BUYER decides to exercise its right of redemption, it shall be forced to pay THE PROMISSORY SELLER the sums referred to in this Clause and in the terms set forth in such.

FIFTH: DELIVERY. THE PROMISSORY SELLER shall employ its best efforts to obtain the urbanization license contemplating the commercial use required for the PROMISSORY BUYER to build the Project, within a period of three (3) months following the signing of this agreement, and shall fully deliver the real property in the process of being urbanized, along with its legally corresponding practices, customs and easements, on December fifteen (15), two thousand and ten (2010), at which time the property must have the following:

5.1           The roadways corresponding to 106 Street and Roadway 53 and the future Roadway 55 in the stretch bordering the lot, built and finished with signalization in the parts surrounding the real property, and in accordance with the measures and conditions appearing in ANNEX 4- ROADWAY SECTIONS.

5.2           Electrical energy ready to be connected from the distribution chamber on the perimeter of the Real Property over the extension of Roadway 55. The power shall be at least 1 megawatt with a three-phase 13,200 voltage. The PROMISSORY BUYER shall be in charge of the switch.

5.3           Drinking water network on the perimeter municipal zone of the real property. The diameter of the piping making up the network shall at least be four (4) inches.

5.4           Point to connect the sanitary sewer system in the municipal zone on the perimeter of the Real Property on Roadway 55. The piping to this point shall at least have a diameter of eight (8) inches.

5.5           At least two points to connect the rainwater sewer system in the municipal zone on the perimeter of the Real Property, on Roadway 55. The piping at these points shall at least have a diameter of fourteen (14) inches. THE PROMISSORY BUYER shall be responsible for adjusting its design levels so that the discharge at these connection points is technically viable.

First Paragraph: All of these elements shall be delivered on the borders of the real property when permitted by the regulations or within a distance of eleven meters after the limit, when the effective regulation does not allow for a direct connection from the border of the Real Property. All the systems shall be delivered in operation conditions and the PROMISSORY BUYER shall be in charge of processing the request for connection.

Second Paragraph: The remaining urbanization infrastructure and landscape, whall be delivered within the three (3) following months, starting as of the delivery of the primary and partial urbanization works listed in this clause and the delivery of the third payment agreed on in the third clause of this Promissory Agreement to THE PROMISSORY SELLER. The remaining urbanization infrastructure and landscape shall be understood as follows:

a.   Sidewalks finished at the parts surrounding THE REAL PROPERTY.

b.   Gardening and tree planting in the municipal areas adjacent to THE REAL PROPERTY.

c.   Any other element of infrastructure that must be built on the perimeters of the REAL PROPERTY, as per that set forth in the urbanization license.

For all the effects of this agreement, the Urbanization License granted to THE PROMISSORY SELLER shall be the master document determining the quality, quantity, specifications, characteristics and other requirements that must be met by the Portal de Alejandría Urbanization. Once the Urbanization license is obtained, such shall constitute an integral part of this document.

Third Paragraph: Connections and Fittings- The PROMISSORY BUYER shall be responsible for the payments to be made for the concept of connection and measurement rights as per the regulations of the service lending entities effective at the time that such were requested. The lending of such services shall depend on the respective service lending entity and the PROMISSORY SELLER shall have no responsibility or obligation whatsoever regarding such .

Fourth Paragraph: Telephone and Natural Gas Services- The service lending company shall be in charge of the installation of the natural gas and communication service networks,  and the supply of such.

Fifth Paragraph: The terms agreed on in this clause shall be automatically extended for thirty (30) days in the event that such terms have not been complied with on the date of the agreed on obligation.

Sixth Paragraph: In all events in which THE PROMISSORY SELLER shall deliver works to THE PROMISSORY BUYER, a DELIVERY AND RECEPTION of works document shall be prepared and signed by THE PARTIES, indicating the date on which the delivery takes place, the quantity and quality of the works received and if such do or do not fulfill the requirements for the delivery of such, in the terms of the license issued and in the terms of this agreement.

Seventh Paragraph: Urbanization License. As desired by THE PARTIES, the attainment, by THE PROMISSORY SELLER, of the urbanization license for the construction of the Portal de Alejandría Project and detachment of the lots making up such, including that of the Real Property that is promised for sale, which shall be detached from the lot of a larger extension and that such enjoys the commercial use required for the construction and operation of the Project of THE PROMISSORY BUYER is considered to be an essential requirement of this negotiation. In the event that the respective urbanization license is denied or that it is impossible to obtain the commercial use required within the term stipulated herein, this transaction shall be terminated in its complete right, without requirements or notices, and without giving way to a compensation payment or penalization in favor of the parties and without constituting noncompliance. THE PROMISSORY SELLER must proceed to return the monies received to such date, for which purpose it shall have thirty (30) days, starting as of the moment on which such denial to grant the license, by the respective authority, is informed or that the use of the land does not allow for the development of the Project by THE PROMISSORY BUYER.

SIXTH: EARLY ENTRY PERMIT- Once this Promissory Purchase AGREEMENT is signed, THE PROMISSORY SELLER shall allow THE PROMISSORY BUYER to access the Real Property, with the only purpose for the latter to perform the respective soil studies. In the event that after performing the soil studies the PROMISSORY BUYER needs to enter the Real Property before the date foreseen for the delivery of such, in order to carry out additional studies, such as measurements, boundary limits and similar studies, such PROMISSORY BUYER shall request the prior authorization of THE PROMISSORY SELLER, who shall authorize such in writing, stating the time during which the former may remain on the site and the requirements involved. These permits shall be granted prior to the written request by THE PROMISSORY BUYER to THE PROMISSORY SELLER and the period correspondi ng to such permit shall be defined by the parties. THE PROMISSORY BUYER states to be informed of and to be bound to comply with the provisions and requirements regarding security and administration that for this effect are contained in the internal hiring manual of Cements Argos S.A.

SEVENTH: GRANTING OF THE DEED OF SALE. The Public Deed of Sale with which this AGREEMENT shall be fulfilled shall be granted at the Third Notary Office of the Circuit of Barranquilla at ten am (10:00am) five (5) months after the date of the signing of this Promissory Purchase agreement, as long as the PROMISSORY SELLER has obtained the urbanization license for the development of the Portal de Alejandría urbanization project and that THE PROMISSORY SELLER has obtained the building license for the PriceSmart Barranquilla Project. If for any reason the urbanization license is obtained after the period of three months referred to in the fifth clause, but still within the term of five months stated herein, the term for the granting of the public deed shall be extended for the same time during which the obtainment  of the urbaniz ation license has exceeded three (3) months.

First Paragraph: In the event that the date of the signing corresponds to a non workday, the deed shall be granted on the workday following such, at the same time and before the same Office of the Notary.

Second Paragraph: Notwithstanding the above stated, the Public Deed may be granted before or after the indicated date, by means of an agreement between THE PARTIES, which shall be stated in writing and as a modification to this document.

Third Paragraph: THE PROMISSORY SELLER shall deliver the respective fiscal and/or tax clearance certificates of the re property required by the regulations for the granting and authorization of the mentioned Deed of Sale at the indicated Office of the Notary on the date of the signing of the Deed of Sale.

Fourth Paragraph: Documents attached to the Public Deed- In order to proceed with the signing of the Public Deed of Sale, THE PROMISSORY SELLER must attach the following documents on the date of the signing:

1.   All the District and Departmental tax clearance certificates that are required by the Notary for the formal registration of the sale of the Real Property promised herein, in accordance with that set forth in such clause.

2.   Folio of the real estate registration corresponding to the real property and that no recordings or annotations limiting the right of ownership and possession, such as easements, assignment areas, affectations or others that are similar exist.

3.   A genuine copy of the Urbanization license granted to the builder of the Portal de Alejandria Project and the detachment of the lots.

EIGHTH: FAÇADE AND  FLOOR PLAN - THE PROMISSORY BUYER presented the photos of the facades, and fifth façade of the ALAJUELA Project in Costa Rica and the floor plan of the site of PriceSmart Barranquilla to THE PROMISSORY SELLER and commits to execute such in a similar manner. These documents are found in ANNEX No. 3- FACADES AND FLOOR PLAN, which are an integral part of this AGREEMENT.

First Paragraph: If during the execution of the Project, substantial modifications are requited in the facades of the Project approved by THE PROMISSORY SELLER, such must be likewise presented and approved by THE PROMISSORY SELLER in such way that they are visually similar to its interests. This paragraph shall be ineffective once the commercial storefront of the Project is open to the public.

NINTH: FREE OF LIENS AND ENCUMBRANCES: THE PROMISSORY SELLER states that on the date of the signing of the public Deed of Sale it shall hold the ownership and other rights on the real property and that such property shall not be transferred to any other third party that is not THE PROMISSORY BUYER, shall not have any limitations regarding ownership or mortgages, shall not be the object of civil suits, census, public document leases, antichresis, embargo or conditions subsequent affecting ownership and that it shall posses such in a calm, regular and peaceful manner. In every event, THE PROMISSORY SELLER is required to proceed to ensure that no encumbrances exist, in accordance to law.

First Paragraph: Extension of the obligation to ensure the nonexistence of encumbrances and obligation to defend THE PROMISSORY BUYER. As agreed on by THE PARTIES, any legal action directed towards rendering the urbanization license required for the development of the Project null and void must be remedied by THE PROMISSORY SELLER, and such shall be required to defend the interests of the PROMISSORY BUYER to avoid the detriment of such; and this obligation shall remain in effect throughout the complete execution of the Project, and may never be less than the legal term set forth for such purpose.

TENTH: EXPENSES: Fifty percent (50%) of the Notary expenses incurred in by the granting of the Public Deed of Sale that perfects this Promissory Purchase AGREEMENT, shall be borne by THE PROMISSORY SELLER, and the remaining fifty percent (50%) shall be borne by THE PROMISSORY BUYER. The registration expenses produced at the Office for the Registration of Instruments of Barranquilla shall be fully borne by THE PROMISSORY BUYER.

ELEVENTH: TAXES, RATES AND CONTRIBUTIONS: THE PROMISSORY SELLER is bound to keep the Real Property object of this Promissory Agreement clear of all types of taxes, capital gains taxes, rates, contributions, utilities of any type caused to the date of the granting of the public deed fulfilling this Promise of Purchase. As of the date of the signing of the Deed of Sale, THE PROMISSORY BUYER shall be in charge of any sums of money liquidates, caused by or charged, with regard to valuation of contributions for a general and /or local benefit. The property taxation shall be assumed by THE PROMISSORY SELLER until the date of the signing of the public Deed of Sale. THE PROMISSORY SELLER shall deliver the tax clearance certificates corresponding to such concept to December 31 of the respective fiscal year and THE PROMISSORY BUYER shall proceed to reimburse the portion that it must assume as of that date until December 31 of the respective fiscal year, on the same day of the signing of the public deed which fulfills this Promise.

TWELFTH: ASSIGNMENT: THE PARTIES may assign the contractual possession derived in this AGREEMENT before the date of the granting of the Public Deed, as long as they have the express prior written agreement of the other Party. Nonetheless, THE PARTIES may transfer their contractual position in any way to any of the holding companies or subordinate companies within the Republic of Colombia, without requiring prior authorization from THE OTHER PARTY in order to do so. In the event that the intended assignment is made to a foreign holding or subordinate company, the written consent of THE PARTIES shall be required.

THIRTEENTH: SPECIAL SUPPORT. With regard to the Project that THE PROMISSORY BUYER intends to develop on the Real Property, THE PROMISSORY SELLER is bound, during the time that it still holds the ownership title of the real property, to provide its support and facilitate the signing and subscription of all those records, powers, and documents that THE PROMISSORY BUYER needs to present before the respective Urbanization agency, Municipal Planning Office, environmental authorities and other municipal authorities and entities with regard to the development of the Project. Likewise, THE PROMISSORY SELLER is bound to subscribe the urbanization and/or construction license request and/or modification forms.

First Paragraph: THE PROMISSORY BUYER shall bare all the necessary costs and expenses for the attainment of the building licenses and/or modifications to such required for the execution and development of the Project on the Real Property. THE PROMISSORY BUYER shall be responsible for the processing provided by THE PROMISSORY SELLER before third parties and the authorities.

Second Paragraph: THE PROMISSORY BUYER shall be responsible for the viability and soil studies that are necessary on the Real Property for the successful construction of the Project. THE PROMISSORY SELLER is not responsible for the material state of the current or future soil of the Real Property for the purposes of the construction and development of the PriceSmart Project or for the adjustment works on the soil that are necessary in order to execute the Project.

Third Paragraph: THE PROMISSORY BUYER states that it is informed of the urbanization, foreseen uses and environmental regulations as well as all the others that are applicable and that have been issued by the corresponding authorities for the Real Property object of this AGREEMENT. Likewise, it states to be aware of the consequences involving possible changes to the regulations relating to the use and destination of the soil and all those referring to the territorial organization that affect the real property.

FOURTEENTH: CONFIDENTIALITY: All the terms and conditions of this document, the agreements and legal documents that have been entered into between THE PARTIES for the purposes  of the negotiation and all the information that each of THE PARTIES receives from the other by virtue of the obligations corresponding under this AGREEMENT, must be kept in full reservation and confidentiality by both parties, and therefore, may not be disclosed to third parties except if such disclosure is required by the competent legal or government authority, including the United States Securities Exchange Commission, which binds any of THE PARTIES and its related companies, holdings or affiliates abroad or authorized by the party that may be affected to its disclosure, or if such has been made public by another means not attributable to any of them. The information that THE PARTIES must internally make known to one another, their shareholder meetings, board of directors, advisors and high level staff shall not be considered as a breach of confidentiality; those who shall likewise be bound to the confidentiality in the terms set forth herein.

FIFTEENTH: NO INTERMEDIARIES. The fulfillment of this AGREEMENT as well as the signing and perfection of such shall not be subject to the approval or consent of any middleman and/or intermediary and consequently no commissions shall be paid in favor of any third party for the entering into or execution of this AGREEMENT.

SIXTEENTH: NOTIFICATIONS. Any notification or communication that must be provided in accordance with this AGREEMENT shall be provided in writing and understood to have been provided when delivered in person or by certified mail, or to the related email addresses, but in every event by sending a complete copy to the following addresses:

THE PROMISSORY BUYER:

Attention: Rodrigo Calvo

Address: 10800 NW 100TH St. Suite #1, Medley, FL 33178

Phone: (305) 884-0849

Email: rcalvo@pricesmart.com

C.C. Robert Gans

Address: 9740 Scanton Road, San Diego, California 92121.

Phone: (858) 404-8821

Email: bgans@pricesmart.com

C.C. Gómez Pnzón, Zuleta Abogados S.A.

Attention: Paula Samper – Santiago Jaramillo

Address: Calle 67 No. 7-35, Of 1204, Bogotá, Colombia

Phone: (571) 3192900

Email: psamper@gpzlegal.com  - sjaramillo@gpzlegal.com

THE PROMISSORY SELLER:

Attention: Arnold Gómez Mendoza

Address: Planta Barranquilla de Cementos Argos, S.A. – vía 40

Las Flores, Barranquilla – Colombia

Phone: (575) 3619222

Email: agomez@argos.com.co

SEVENTEENTH: MODIFICATIONS: Any modification to this AGREEMENT must be provided in writing and signed by THE PARTIES.

EIGHTEENTH: ENTIRE AGREEMENT. THE PARTIES state that this AGREEMENT constitutes the entire and full agreement regarding its object and replaces and leaves any and every other oral agreement or document referring to the real property object of this AGREEMENT and described in the first clause of such, previously signed by THE PARTIES, without effect.

NINETEENTH: CONTRACTUAL DOMICILE: For the effects of this AGREEMENT the contractual domicile is set as the city of Barranquilla.

TWENTIETH: ARBITRATION CLAUSE. All disputes or controversies deriving from this AGREEMENT or related to such, shall be resolved by an arbitral tribunal, in accordance with the following rules: (1) The tribunal shall be made up by three (3) arbitrators designated by mutual agreement by THE PARTIES and in the case that an agreement cannot be reached, by the Arbitration and Conciliation Center of the Chamber of Commerce of Bogotá from the “A” list of arbitrators of such Center; (2) Arbitration shall be legal by nature; (3) the tribunal shall operate in Bogotá, at the headquarters of the Arbitration and Conciliation Center of the Chamber of Commerce of that city; (4) at the time of accepting their designation, the arbitrators must state to THE PARTIES, in writing, their independence and impartiality to act as arbitrators regarding disputes or controversies.

TWENTY-FIRST: ANNEXES TO THIS AGREEMENT: The following Annexes are part of this AGREEMENT:

(a)   Annex 1: ANNEX 1- EXISTENCE AND LEGAL REPRESENTATION CERTIFICATES OF CEMENTOS ARGOS S.A. AND PRICESMART COLOMBIA SAS

(b)   Annex 2: (ANNEX 2 – BOUNDARIES AND MEASUREMENTS OF LOT C-2

(c)   Annex 3: ANNEX 3- FACADES AND FLOOR PLAN

(d)   Annex 4: ANNEX 4 – ROADWAY SECTIONS

TWENTY-SECOND: PREFERENTIAL PURCHASE OPTION: THE PARTIES shall insert a Preferential Real Property Reacquisition Clause in the Public Deed of Sale, which shall contain the following text:

“THE PURCHASER grants a preferential purchase option to the SELLER in the event that THE BUYER should decide to transfer the property without culminating the construction Project. THE SELLER shall have a term of ninety (90) days to decide to exercise or not exercise its right to the repurchase of the Real Property. The preferential reacquisition option shall be exercised for the same value of the capital for which THE PURCHASER acquires the Real Property from THE SELLER, without taking the current interests and late payment fines paid and including the improvements and modifications that THE SELLER or THE PURCHASER have made to the transferred real property. THE SELLER must pay the value of the repurchase, in the terms and conditions that they were paid by THE BUYER. The preferential purchase option shall be ineffective and expire i n its full right and without requiring any formalities whatsoever, once the commercial storefront of the Project is open to the public”.

Signed in the city of Barranquilla, on May sixteen (16), two thousand and ten (2010), on two (2) duplicates of the same tenor, one for each of THE PARTIES.

THE PROMISSORY BUYER                                                                                     THE PROMISSORY SELLER

PRICESMART COLOMBIA SAS                                                                                   CEMENTOS ARGOS S.A.

TIN: 900,319,753-3                                                                                      TIN: 890,100,251-

                                                                   

RODRIGO CALVO GONZALEZ                                                                                     ARNOLDO ERNESTO GÓMEZ MENDOZA

Passport No. 107930239 from Costa Rica                                                                                     C.C. No. 19,472,285 of Bogotá

Special Proxy                                                                           Legal Representative.

(The notarization of the signatures pertaining to Rodrigo Calvo Gonzalez and Arnoldo Ernesto Gomez Mendoza are certified by the Notary of the Third Circuit of Barranquilla, Alfonso Luis Avila, on June 16, 2010, and June 1º8, 2010, respectively and the seal and signature of the notary is adhered and placed on the legalizations).

ANNEX 1- EXISTENCE AND LEGAL REPRESENTATION OF CEMENTOS ARGOS S.A. AND PRICESMART COLOMBIA SAS

03-1215402

Barranquilla, June 18, 2010 – Time: 10:57:42 (No. 14623953). (Logo of the Chamber of Commerce of Barranquilla) THE CHAMBER OF COMMERCE OF BOGOTÁ CERTIFYING THE EXISTENCE AND LEGAL REPRESENTATION OR REGISTRATION OF DOCUMENTS.

THE CHAMBER OF COMMERCE OF BOGOTÁ, BASED ON THE REGISTRATIONS OF THE TRADE REGISTRY, HEREBY CERTIFIES:

NAME: PRICESMART COLOMBIA S A S

N.I.T.: 900319753-3     ADMINISTRATION: SECTIONAL OFFICE OF TAXES OF BOGOTÁ, COMMON REGIME.

DOMICILE: BOGOTÁ, D.C.

CERTIFIES

REGISTRATION NO: 01941293 DATED OCTOBER 26, 2009

CERTIFIES

ADDRESS FOR LEGAL NOTIFICATION: CL 67 NO. 7 35 OF 1240

MUNICIPALITY: BOGOTÁ D.C.

CERTIFIES

CONSTRUCTION: THAT BY MEANS OF A PRIVATE DOCUMENT OF A SINGLE SHAREHOLDER DATED OCTOBER 6, 2009, REGISTERED ON OCTOBER 26, 2009, UNDER NUMBER 01336597 OF BOOK IX, THE COMMERCIAL BUSINESS KNOWN AS PRICESMART COLOMBIA S A S WAS INCORPORATED.

CERTIFIES

EFFECTIVENESS: THAT THE DURATION OF THE CORPORATION IS UNDEFINED

CERTIFIES:

CORPORATE OBJECT: THE MAIN CORPORATE OBJECT OF THE CORPORATION IS THE DEVELOPMENT OF ANY LEGAL BUSINESS ACTIVITY. PARAGRAPH: IN THE DEVELOPMENT OF ITS MAIN CORPORATION OBJECT, THE CORPORATION MAY: (A) CONSTITUTE OTHER CORPORATIONS AND PARTAKE IN OTHERS THAT PROPOSE SIMILAR, COMPLEMENTARY OR ACCESSORY ACTIVITIES TO THOSE OF THE CORPORATION AND THAT ARE CONVENIENT AND OF USE FOR THE DEVELOPMENT OF ITS BUSINESSES, MERGE WITH OR ABSORB SUCH; (B) CREATE OR FORM A PART OF INSTITUTIONS, FOUNDATIONS, CORPORATION OR ASSOCIATIONS OF ANY TYPE OR NATURE IN COLOMBIA AND ABROAD; (C) MAKE CAPITAL INVESTMENTS IN ANY TYPE OF IMMATERIAL REAL PROPERTY AND SIMILAR PROPERTY, INCLUDING, AMONG OTHERS, SHARES, BONDS, CORPORATE STOCK, FEES OR RIGHTS IN CORPORATIONS AND ANY OTHER TYPE OF REAL ESTATE TITLES OR VALUES; AND ADMINISTRATE SUCH INVESTMENTS; (D) ENTER INTO ALL TYPES OF OPERATIONS RELATING TO PROPERTIES, BUSINESSES, ACTIVITIES AND CORPORATE OBJECT OF THE CORPORATION WITH CREDIT ESTABLISHMENTS OR FINANCIAL ENTITIES, WHETHER NATIONAL OR FOREIGN, OFFICIAL OR PRIVATE; (E) ISSUE, ACCEPT, ENDORSE, GUARANTEE, ENSURE, COVER AND NEGOTIATE, IN GENERAL, ALL TYPES OF SECURITIES AND ANY OTHER PERSONAL RIGHTS OR CREDIT RIGHTS; (F) ENTER INTO PLEDGE AGREEMENTS, ANTICHRESIS, DEPOSITS, GUARANTEES, ADMINISTRATION, MANDATES, COMMISSIONS AND CONSIGNATIONS; (G) ACQUIRE, TRANSFER, TAX, LIMIT THE OWNERSHIP AND ADMINISTRATE ALL KINDS OF REAL OR MOVABLE PROPERTY, CHANGE THEIR FORM, LEASE OUT OR LEASE REAL OR PERSONAL PROPERTY; (H) ENTER INTO TECHNICAL ADMINISTRATION, ECONOMIC ADMINISTRATION COVENANTS WITH OTHER PERSONS; (I) ENTER INTO PARTICIPATION AGREEMENTS, WHETHER ACTIVELY OR INACTIVELY PARTICIPATING (J)HIRE TECHNICIANS IN THE COUNTRY OR ABROAD WITH REGARD TO THE ACTIVITIES PERTAINING TO ITS OBJECT; (K) REPRESENT NATIONAL AND FOREIGN COMPANIES; (L) REGISTER PATENTS, TRADE NAM ES, TRADEMARKS AND OTHER INDUSTRIAL PROPERTY RIGHTS AND ACQUIRE OR GRANT ASSIGNMENTS FOR THEIR EXPLOITATION; (M) PARTICIPATE IN PUBLIC OR PRIVATE TENDERS, WHETHER NATIONAL OR INTERNATIONAL OR IN ANY DIRECT ENGAGEMENT PROCEDURE WITH NATIONAL OR INTERNATIONAL ENTITIES; (N): IN GENERAL, THE CORPORATION MAY EXECUTE ALL THE AGREEMENTS, ACTS OR OPERATIONS OF ANY NATURE, IN ANY WAY DIRECTLY RELATED WITH THE CORPORATE OBJECT INDICATED IN THIS SECTION, AND ALL THOSE WHICH PURPOSE IS THAT OF EXERCISING THE RIGHTS AND FULFILLING THE LEGAL OBLIGATIONS OR CONVENTIONALLY DERIVING FROM THE EXISTENCE AND THE ACTIVITIES DEVELOPED BY THE CORPORATION. THE ABOVE STATED ACTIVITIES MAY BE EXECUTED BY THE CORPORATION DIRECTLY OR THROUGH THIRD PARTY AGREEMENTS.

CERTIFIES:

CAPITAL:

** AUTHORIZED CAPITAL**

VALUE:                      $20,000,000.00

NO. OF SHARES: 20,000.00

NOMINAL VALUE: $1,000.00

** SUBSCRIBED CAPITAL**

VALUE:                      $20,000,000.00

NO. OF SHARES: 20,000.00

NOMINAL VALUE: $1,000.00

**PAID-IN CAPITAL**

VALUE: $20,000,000.00

NO. OF SHARES: 20,000.00

NOMINAL VALUE: $1,000.00

CERTIFIES:

LEGAL REPRESENTATION: THE LEGAL REPRESENTATIVE OF THE CORPORATION SHALL BE DESIGNATED BY THE SHAREHOLDERS’ MEETING. THE EXERCISE OF HIS/HER DUTIES SHALL BE SUBJECT TO THE ARTICLES OF INCORPORATION AND THE LAW. THE LEGAL REPRESENTATIVE MAY HAVE A DEPUTY, DESIGNATED BY THE SHAREHOLDERS’ MEETING, WHO SHALL REPLACE SUCH IN ALL ABSOLUTE, TEMPORARY AND EVENTUAL ABSENCES.

CERTIFIES:

**APPOINTMENTS **

THAT THE FOLLOWING WAS (WERE) APPOINTED IN PRIVATE SINGLE SHAREHOLDER DOCUMENT DATED OCTOBER 6, 2009, REGISTERED ON OCTOBER 26, 2009 UNDER NUMBER 01336597 OF BOOK IX:

NAME                                                                                     IDENTIFICATION

LEGAL REPRESENTATIVE

SAMPER SALAZAR PAULA PIA DEL ROSARIO                                                                                                C.C. 000000051854274

DEPUTY LEGAL REPRESENTATIVE

DUARATE MARIN CAMILO ALBERTO                                                                                                C.C. 000000080503609

CERTIFIES:

POWERS OF THE LEGAL REPRESENTATIVE: THE ATTRIBUTIONS OF THE LEGAL REPRESENTATIVE: A) TO EXERCISES THE LEGAL REPRESENTATION, BOTH JUDICIAL AND EXTRAJUDICIAL OF THE CORPORATION. B) TO ADMINISTRATE THE BUSINESSES OF THE COMPANY, EXECUTING IN ITS NAME ALL TYPES OF AGREEMENTS. THE LEGAL REPRESENTATIVE SHALL REQUIRE THE PRIOR EXPRESS APPROVAL OF THE SHAREHOLDERS’ MEETING TO ENTER INTO AGREEMENTS OR BUSINESSES ESTABLISHING OBLIGATIONS OF THE CORPORATION GREATER  THAN OR EQUAL TO A VALUE EQUAL TO TWENTY MILLION COLOMBIAN PESOS (COP $20,000,000.00) C) PRESENT FOR THE CONSIDERATION OF THE SHAREHOLDERS’ MEETING A REPORT ON THE ANNUAL MANAGEMENT OF THE COMPANY FOR ITS APPROVAL. D) HIRE, APPOINT AND REMOVE THOSE EXECUTIVES AND EMPLOYEES WHICH APPOINTMENT CORRESPONDS TO THE SHAREHOLDERS’ MEETING AND SET THEIR REMUNERATION S. E) SUBSCRIBE TAX STATEMENTS AND ANY OTHER DOCUMENT THAT MUST BE SUBMITTED BEFORE THE ADMINISTRATIVE ENTITIES AND THAT CORRESPOND TO THE ORDINARY LINE OF BUSINESS. F) GRANT GENERAL AND SPECIAL POWERS OF ATTORNEY. G) WATCH OVER THE ACCOUNTING, ASSETS AND CORRESPONDENCE OF THE CORPORATION AND ENSURE THE SOUND FUNCTIONING OF THEIR DEPARTMENTS; H) CALL FOR THE SHAREHOLDERS’ MEETING.

CERTIFIES:

THAT THROUGH PUBLIC DEED NO. 1516 OF NOTARY OFFICE 73 OF BOGOTÁ, D.C., DATE MAY 25, 2010, REGISTERED ON MAY 26, 2010 UNDER NO. 00017699 OF BOOK V., PAULA PIA DEL ROSARIO SAMPER SALAZAR, IDENTIFIED WITH IDENTITY CARD NO. 51, 854,274 OF BOGOTÁ APPEARED IN HER CAPACITY AS LEGAL REPRESENTATIVE, AND BY MEANS OF THIS PUBLIC DEED CONFERS A SPECIAL, BROAD AND SUFFICIENT POWER OF ATTORNEY TO MRS. AMIRA ICELA CHONG DE NAVARRO, OF LEGAL AGE, DOMICILED IN THE CITY OF PANAMA, REPUBLIC OF PANAMA, IDENTIFIED WITH PASSPORT NO. 1614026 ISSUED IN PANAMA, SO THAT AS THE LEGITIMATE REPRESENTATIVE OF THE CORPORATION, WITH FULL POWERS AND FACULTIES, SHE MAY CARRY OUT THE FOLLOWING ACTIVITIES: 1. SIGN AND SUBMIT TO THE RESPECTIVE AUTHORITIES THE TAX STATEMENTS CORRESPONDING TO THE INCOME TAX, COMPLEMENTARY STATEMENTS AND CONTRIBUTIONS AND SPECIAL T AXES AND THE CORRECTIONS, AGGREGATES AND MODIFICATIONS TO SUCH OR TO THE DOCUMENTS REPRESENTING SUCH, IN THE FORMATS PRESCRIBED BY THE TAX AUTHORITIES OR BY ELECTRONIC MEANS SET BY THE LAWS. 2. TO SIGN AND SUBMIT BEFORE THE RESPECTIVE AUTHORITIES THE SALES TAX STATEMENTS AND THEIR CORRECTIONS, AGGREGATES AND MODIFICATIONS OR DOCUMENTS REPRESENTING SUCH, IN THE FORMATS PRESCRIBED BY THE TAX AUTHORITIES. 3. SIGN AND SUBMIT BEFORE THE RESPECTIVE AUTHORITIES THE TAXATION AT SOURCE TAX STATEMENTS CORRESPONDING TO THE INCOME TAXES, COMPLEMENTARY, CONTRIBUTIONS, SPECIAL TAXES, SALES TAXES, TAX STAMP TAXES, INDUSTRY AND COMMERCIAL TAXES, AND THE TAXES, RATES OR CONTRIBUTIONS AND THEIR CORRECTIONS, AGGREGATES AND MODIFICATIONS OR THE DOCUMENTS REPRESENTING SUCH, IN THE FORMATS PRESCRIBED BY THE TAX AUTHORITIES, OR THROUGH ELECTRONIC MEANS SET BY THE LAWS. 4. TO SIGN AND SUBMIT BEFORE THE RESPECTIVE AUTHORITIES THE INDUSTRY, COMMERCE, COMPLEMENTARY, NOTICE, BOARDS, PROPERTY, UNIFIED, MOTOR VEHICLE AND OTHER TAXES, RAT ES AND CONTRIBUTIONS OF A MUNICIPAL OR DEPARTMENTAL NATURE AND THEIR CORRECTIONS, AGGREGATES AND MODIFICATIONS OR THE DOCUMENTS REPRESENTING SUCH OR THROUGH ELECTRONIC MEANS SET BY THE LAWS. 5. TO SIGN AND SUBMIT BEFORE THE RESPECTIVE AUTHORITIES THOSE DOCUMENTS CONTAINING ALL TYPES OF INFORMATION OF A TAX NATURE, BOTH NATIONAL AND DEPARTMENTAL AND MUNICIPAL TAXES, RATES AND CONTRIBUTIONS AND DEPARTMENTAL AND THEIR CORRECTIONS, AGGREGATES AND MODIFICATIONS AND THE DOCUMENTS REPRESENTING SUCH, IN THE FORMATS PRESCRIBED BY THE TAX AUTHORITIES OR THROUGH ELECTRONIC MEANS SET BY THE LAWS. 6. TO SIGN AND SUBMIT BEFORE THE RESPECTIVE AUTHORITIES THE OTHER TAX STATEMENTS REGARDING TAXES, RATES AND CONTRIBUTIONS WHETHER NATIONAL, DEPARTMENTAL OR MUNICIPAL AND THEIR CORRECTIONS, AGGREGATES AND MODIFICATIONS OR DOCUMENTS ACTING AS SUCH, IN THE FORMATS PRESCRIBED BY THE TAX AUTHORITIES OR THROUGH ELECTRONIC MEANS SET BY THE LAWS. 7. TO NOTIFY AND REPRESENT THE CORPORATION FOR THE EFFECTS OF REPLYING, DURING ANY PROCEDU RAL STAGE, TO THE REQUIREMENTS AND/OR ANY ADMINISTRATIVE ACT, PETITION, ACTIONS OR FORMALITY INITIATED BY THE ADMINISTRATIVE OR TAX AUTHORITIES, EXPLICITLY OR IMPLICITLY AFFECTING THE INTERESTS OF THE CORPORATION, AS WELL AS : ATTENDING TO THE SUMMONS, ORDINARY AND SPECIAL REQUIREMENTS STATED BY THE TAX AUTHORITIES; (II) THE LODGING OF APPEALS OR SUITS AGAINST ACTS PRONOUNCED BY THE TAX AUTHORITIES; AND (III) THE SUBMITTAL OF RETURN AND/OR OWED COMPENSATION REQUESTS OR EXCESS PAYMENTS OR REGARDING THAT NOT OWED; 8. TO REPRESENT THE CORPORATION TO SIGN AND SUBMIT ALL THE DOCUMENTS RELATING TO THE ASSET IMPORT, ASSET EXPORT AND CUSTOMS TRANSMIT SYSTEMS, INCLUDING WITHOUT LIMITATION, THE SIGNING OF MANDATE AGREEMENTS ENTERED INTO BETWEEN THE CORPORATION AND CUSTOMS AGENCIES, PORT CORPORATIONS, INTERNATIONAL FREIGHT AGENTS AND TRANSPORTERS, FOR THE DEVELOPMENT OF THE NECESSARY PROCESSES FOR THE EXECUTION OF FOREIGN BUSINESS OPERATIONS; 9. TO NOTIFY AND REPRESENT THE CORPORATION TO SIGN ANY REPLY REQUIRED TO BE S UBMITTED BEFORE THE CUSTOMS AUTHORITIES OR IN GENERAL, ANY FOREIGN BUSINESS AUTHORITY, DURING ANY PROCEDURAL STAGE, INCLUDING BUT NOT LIMITED TO, (I) ORDINARY REQUIREMENTS, SPECIAL REQUIREMENTS STATED BY THE CUSTOMS AUTHORITIES, (II) LODGING APPEALS THROUGH GOVERNMENT CHANNELS OR LODGING SUITS AGAINST THE ACTS PERFORMED BY THE CUSTOMS AUTHORITIES AND (III) SUBMITTING REQUESTS AND/OR PETITIONS BEFORE SUCH AUTHORITIES THAT INVOLVE THE INTERESTS OF THE CORPORATION.

CERTIFIES

THAT IN ACCORDANCE WITH THAT SET FORTH BY LAW 962 OF THE YEAR 2005, THE REGISTRATION RECORDS CERTIFIED HEREIN REMAIN FINAL FIVE (5) WORKDAYS FOLLOWING THE DATE OF REGISTRATION, AS LONG AS THEY ARE NOT THE OBJECT OF APPEALS THROUGH GOVERNMENT CHANNELS.

* * *           THIS CERTIFICATION DOES NOT CONSTITUTE PERMISSION FOR OPERATION IN ANY EVENT

ATTENTION ALL BUSINESS PERSONS: IF YOUR COMPANY HAS ASSETS FOR A SUM OF LESS THAN 30,000 SMLMV AND A STAFF OF LESS THAN 200 WORKERS, YOU ARE ENTITLED TO RECEIVE A DISCOUNT ON THE PARA FISCAL CHARGES OF 75% DURING THE FIRST YEAR IN WHICH YOUR COMPANY IS CONSTITUTED, OF 50% DURING THE SECOND YEAR AND OF 25% DURING THE THIRD YEAR. LAW 590 OF THE YEAR 2000 AND DECREE 525 OF THE YEAR 2009.

REMEMBER TO VISIT www.supersociedades, gov.co TO VERIFY IF YOUR COMPANY IS BOUND TO REMIT FINANCIAL STATEMENTS. AVOID PENALIZATIONS.

THE SECRETARY OF THE CHAMBER OF COMMERCE.

VALUE: $10,800

IN ACCORDANCE WITH DECREE 2150 OF THE YEAR 1995 AND THE AUTHORIZATION PROVIDED BY THE INDUSTRY AND COMMERCE SUPERINTENDENCY, BY MEANS OF OFFICIAL DOCUMENT DATED NOVEMBER 18, 1996, THE MECHANICAL SIGNATURE APPEARING BELOW IS FULLY VALID FOR ALL LEGAL EFFECTS. (Illegible Signature).

03-12015401 003646 CEMENTOS ARGOS S.A. ACRONYM ARGO

Barranquilla, June 18, 2010 – Time: 10:56:40 (No. 14623942). (Logo of the Chamber of Commerce of Barranquilla) THE CHAMBER OF COMMERCE OF BOGOTÁ CERTIFYING THE EXISTENCE AND LEGAL REPRESENTATION OR REGISTRATION OF DOCUMENTS.

CEMENTOS ARAGOS S.A. ACRONYM ARGOS, S.A.

TIN: 890, 100, 251-0.

THE UNDERSIGNED SECRETARY OF THE CHAMBER OF COMMERCE OF BARRANQUILLA, BASED ON THE REGISTRATION OF THE TRADE REGISTRY:

CERTIFIES

That through Public Deed No. 1,299, dated August 14, 1944, granted by the Second Notary Office of Barranquilla, which notary extract is registered in this Chamber of Commerce, on August 19, 1944, under No. 3,623 of the respective book, the following corporation known as “CEMENTOS DEL CARIBE S.A.” was constituted.”---------------------------------------------------------------------------------

CERTIFIES

That through Public Deed No. 3,144 dated December 16, 2005, granted by the 3rd Notary of Barranqilla, registered in this Chamber of Commerce on December 28, 2005, under No. 121,766 of the respective book, the before mentioned corporation changed its corporate name to CEMENTOS ARGOS S.A. ACRONYM ARGOS, S.A.------------------------------------------------------------------------------------

CERTIFIES

That through Public Deed No. 3,264 dated December 28, 2005, granted by the 3rd Notary of Barranquilla which relevant part was registered in this Chamber of Commerce on December 28, 2005, under No. 121,769 of the respective bookl,

Stating that the corporation CEMENTOS ARGOS, S.A. ACRONYM ARGOS, S.A. was merged with CEMENTOS DEL VALLE S.A., COMPANIA COLOMBIANA DE CLINKER S.A., COLKLINKER S.A., CALES Y CEMENTOS DE TOLUVIEJO, S.A., TOLCEMENTO, CEMENTOS RIOCLARO S.A., CEMENTOS EL CAIRO S.A., CEMENTOS DEL NARE S.A., CEMENTOS PAZ DEL RIO S.A., CPR S.A. of which the first absorbed them all and the rest were absorbed.------------------------------------------------------------------------------

CERTIFIES

That such corporation has been modified by the following private deeds and/or documents:

Number	Year/month/day	Notary Office	Registration No.	Year/month/day
573	1947/03/07	2nd Notary of Barranquilla	4,730	1947/03/12
1,436	1950/05/11	2nd Notary of Barranquilla	6,508	1950/06/05
478	1955/03/23	3rd Notary of Barranquilla	9,009	1955/04/11
669	1956/03/22	3rd Notary of Barranquilla	9,492	1956/03/26
1,896	1959/07/17	3rd Notary of Barranquilla	11,772	1959/07/17
670	1962/04/10	3rd Notary of Barranquilla	13,764	1962/04/24
1,191	1969/06/02	3rd Notary of Barranquilla	24,570	1969/06/19
1,507	1969/07/05	3rd Notary of Barranquilla	24,678	1969/07/21
46	1973/01/16	3rd Notary of Barranquilla	1,373	1973/02/26
1,559	1974/06/10	3rd Notary of Barranquilla	3,182	1974/07/16
1,025	1975/05/30	3rd Notary of Barranquilla	4.336	1975/06/12
1,024	1975/05/30	3rd Notary of Barranquilla	4,356	1975/06/17
1,623	1975/09/07	3rd Notary of Barranquilla	6,236	1976/09/22
1,687	1978/09/05	3rd Notary of Barranquilla	8,872	1978/09/22
1,082	1979/06/08	3rd Notary of Barranquilla	10,196	1979/07/05
1,102	1983/05/24	3rd Notary of Barranquilla	17,262	1983/08/01
1,846	1989/08/17	3rd Notary of Barranquilla	34,613	1989/09/26
1,917	1990/09/24	3rd Notary of Barranquilla	38,159	1990/09/26
1,617	º991/07/15	3rd Notary of Barranquilla	41,855	1991/07/25
1,469	1992/06/16	3rd Notary of Barranquilla	45,779	1992/07/04
1,236	1993/05/10	3rd Notary of Barranquilla	49,823	1993/06/07
1,393	1994/05/30	3rd Notary of Barranquilla	54,193	1994/06/01
1,569	1995/06/21	3rd Notary of Barranquilla	59,466	1995/06/29
1,672	1997/06/25	3rd Notary of Barranquilla	70,349	1997/07/14
692	2000/04/11	3rd Notary of Barranquilla	87,004	2000/05/16
795	2001/05/03	3rd Notary of Barranquilla	92,775	2001/05/11
889	2002/05/02	3rd Notary of Barranquilla	98,720	2002/05/17
983	2003/05/08	3rd Notary of Barranquilla	105,231	2003/05/28
622	2004/03/31	3rd Notary of Barranquilla	110,354	2004/04/02
3,114	2005/12/16	3rd Notary of Barranquilla	121,766	2005/12/28
903	26/04/26	3rd Notary of Barranquilla	123,917	2006/04/28
814	2007/04/23	3rd Notary of Barranquilla	131,926	2007/05/17
1,306	2008/06/27	3rd Notary of Barranquilla	141,280	2008/07/15

CERTIFIES

That according to the above cited deed(s), the corporation is governed by the following provisions:

CORPORATION NAME:

CEMENTOS ARGOS S.A. ACRONYM: ARGOS S.A.

ACRONYM: ARGOS S.A.

TIN No. 890,100,251-0

TRADE REGISTRATION: 3,646.

CERTIFIES

Address for judicial notifications:

CL 7 D No 43 A -99.

De la ciudad de Medellin.

Email: mecheverri@argos.com.co

CERTIFIES

TERM: The term of the corporation was set until August 2060.

CERTIFIES

CORPORATE OBJECT: the exploitation of the Cement Industry and production of concrete mixtures and any other types of materials of cement, lime or clay-based articles; the acquisition and transfer of minerals or mineral deposits usable in the cement industry and similar industries and the rights to exploit and explore the indicated minerals, whether through assignment, privilege, leasing or any other way; the acquisition and the transfer of deposits of other minerals and the rights to explore and exploit minerals other than those previously indicated, whether through assignment, privilege, leasing or any other way; carrying out exploration and exploitation activities of hydrocarbons and other activities inherent to the sector; the establishment of factories, stores, and agencies for the preparation, storage, distribution and sale of its pr oducts and the acquisition, exploitation and transfer of raw materials, machinery and possessions to carry out its corporate object or that tend to be developed. The use of unusable substances through other processes to replace raw materials or fuels in the manufacture of cement. The corporation may build and operate the industrial mounting and installations necessary, such as factories, electrical plants, docks, workshops, buildings, warehouses, stores or agencies; establish the distribution and sales systems it considers appropriate; undertake the acquisition, transportation, transfer and entering into all types of agreements regarding the cement industry products and on the objects giving way to the occupation of such, and likewise in the acquisition, exploitation and transfer of raw materials to fulfill its corporate object. Likewise, the corporation may develop and exploit all types of commercial activities at its port facilities, as well as engage individuals in the use of such, invest in construction, maintenance and administration of ports; lending loading and unloading storage services for ports and other services directly related with the port activity. As well as to act as a contractor, constructor, consultant, inspector, designer and draftsman or woman of civil works of those of another type, before any public or private entity. To invest in all types of real and personal property and specifically in shares or parts, or any other stock, in corporations, organizational entities, funds or any other legal figure permitting investment in resources.

Likewise, to invest in papers or documents of a fixed, variable income, whether they are or are not registered in the public securities market. In any event, the issuers and/or receivers of the investment may be public, private or mixed, national or foreign. With the purpose of achieving the total fulfillment of the corporate object, the corporation may also: a: Acquire the ownership or any type of rights on real property, machinery and other assets and erect constructions and other works that are necessary or convenient for the development of their businesses, obtain media and concessions for the use of water,  exploitation of minerals and other natural resources related with its object; acquire, maintain, use and transfer patents, registration rights, permits, privileges, industrial procedures, trademarks and registered trade names, relating to the establishments and, to all the production, process, operation and activities of the company, entering into all types of business negotiations regarding such; the transfer of all that which it in any way ceases to require or is inconvenient; invest its available reserve, projection or other funds in the acquisition of assets and rights of all types, real or personal, substantial or unsubstantial, being able to keep them, exploit them and transfer them, subsequently, according to the needs of the corporation.  B.- Form, organize or finance corporations, partnerships or companies with equal or similar objects to those of the corporation, or that have the objective of executing or entering into businesses resulting in the opening of new markets for the items produced by the corporation or providing clients or improving such corporation, in any way facilitating the operations that constitute the main object of such, or entering in all types of arrangements or agreements with them and subscribing or taking interest in the mentioned corporations, partnerships or companies. C.- Incorporating the businesses of any of the corporations, partnerships or companies before mentioned, or merging such. D.- Take and give money at an interest rate, issue bonds in accordance with the regulations foreseen in the law; giving its movable and real property, substantial or unsubstantial as a guarantee; issuing, endorsing, acquiring, accepting, charging, protesting, cancelling or paying bills of exchange, checks, transfers or any others commercial effects or accepting them as payment; and in general to perform all types of civil, commercial, industrial or financial operations, any place, whether in its name, whether in the name of third parties or participating with them, on real or personal property, that are necessary and convenient in order to achieve the purposes sought by such corporation of that may favor or develop its activities or those relating to the corporation object. E.- The corporation may form civil or commercial companies of any nature, or become a partner in those already incorporated, as long as the corporate object of one or the other are similar, related or complementary to its own object. But the partnership that is permitted through this clause may even include companies which activity is other than that of its own corporation, as long as it is proves to be convenient for its interests in the opinion of the body authorized by the articles of incorporation to approve the operation.

CERTIFIES

Capital                                                                           No. of Shares                                                      Value of Shares

Authorized

$*******9,000,000,000                                                                1,500,000,0006

Subscribed

$*******7,291,487,317                                                                1,215,247,8856

Paid-in

$*******7,291,487,317                                                                1,215,247,8856

CERTIFIES

ADMINISTRATION: The duties of the Board of Directors, among others, are the following: To freely appoint and remove the president of the corporation. To establish departments, branches or agencies in other cities of the country or abroad. To authorize the celebration of any act or entering into any agreement which sum exceeds a value equal to ten thousand (10,000) legal monthly minimum wages in legal currency of Colombia, except those which object is that of marketing or selling the products prepared or exploited by the company or the services provided by such. The president may not execute any of such acts, nor enter into any such agreements exceeding this sum without the prior and favorable vote of the Board of Directors.  Except for a statutory provision to the contrary, the Board of Directors is presumed to have sufficient a ttributions to order the execution or celebration of any act or agreement included within the corporate object and for all necessary determinations leading the corporation to fulfill its purposes. With the legal exceptions, the Board of Directors may delegate duties in the president. Additionally, there shall be four (4) legal representatives for the judicial effects, as well as to advance all types of processes before the public authorities, with the broadest powers, which shall be designated by the Board of Directors of the corporation. The duties of the president are, among others, the following: To represent the corporation judicially and extra judicially. To constituted judicial and extrajudicial proxies and delegate certain functions to such, within the legal limit. To execute the acts and enter into the agreements tending to fulfill the corporate purposes, previously submitting before the Board of Directors those that are the exclusive competence of such Board, as per the articles of incorporation, am ong such the businesses which sum exceeds a value equal to ten thousand (10,000) legal monthly minimum wages in legal currency of Colombia, except those which object is the marketing or sale of the products prepared or exploited by the company or the services provided by such.

CERTIFIES

That by means of a Private Document Dated December 21, 2007, granted in Barranquilla and registered in this Chamber of Commerce on December 26, 2007, CEMENTOS ARGOS, S.A., ACRONYM ARGOS S.A. is linked to a BUSINESS GROUP, controlled by INVERSIONES ARGOS S.A.

Domicile: Medellin.-------------------------------------------------------------------------------------------------------

CERTIFIES

That according to that stated in Minute No. 78, dated March 24, 2009, corresponding to the Shareholders’ Meeting in Barranquilla, for the corporation: CEMENTOS ARGOS S.A. ACRONYN ARGOS S.A., which relevant part was registered in this Chamber of Commerce, on May 07, 2009, under NO. 148 of the respective book, the following appointments were made:

CLASS:                                                                BOARD OF DIRECTORS

1.   Restrepo Isaza Sergio                                                                           C.C.*****15,347,043

2.   Giraldo Mira Ana María                                                                           C.C.*****43,730,092

3.   Bernal Correa Andres                                                                           C.C.*****98,557,227

4.   Betancourt Azcarate Claudia                                                                           C.C.*****31,930,592

5.   Vieira Fernandez Juan David                                                                           C.C.******8,319,482

CERTIFIES

That in accordance with Minute No. 1,045 dated December 29, 2005, corresponding to the Board of Directors in Barranquilla, for the corporation: CEMENTOS ARGOS, S.A., ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on December 29, 2005 under No. 121,812 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Chairman.

Velez Cadavid Jose Alberto                                                               CC.*****8,345,685

Legal Representative

Yepes Jimenez Carlos Raul                                                                CC.****70,560,961

Legal Representative

Sierra Fernandez Ricardo Andres                                                     CC.****98,543,561

Legal Representative

Acevedo Zuluaga Jorge Igancio                                                       CC.****70,561,899

Legal Representative

Bettin Vallejo Eduardo                                                                         CC.****79,416,314

Legal Representative

Lizarralde Victor Manuel                                                                     CC.****19,381,169

Legal Representative

Madrid Pinilla Julian                                                                            CC.****16,772,009

Legal Representative

Velasquez Jaramillo Jorge Mario                                                       CC.****70,551,175

Legal Representative

Uriza Pardo Maria                                                                                 CC.****51,788,982

CERTIFIES

That according to that stated in Minute No 1,060, dated July 2007, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on August 08, 2007, under number 133,562 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Abella Vives Camilo Jose                                                                           CC.****80,418,493

CERTIFIES

That according to that stated in Minute No 1,060 dated July 23, 2007, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on August 13, 2007, under NO. 133,662 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Gomez Mendoza Arnold Ernesto                                                                           CC.****19,472,285

CERTIFIES

That according to that stated in Minute No 1,061 dated October 24, 2007, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on November 28, 2007, under NO. 135,976 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Gomez Crespo Ilva Cecilia                                                                           CC.****32,747,519

CERTIFIES

That according to that stated in Minute No 1,062 dated January 28, 2008, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on February 07, 2008, under NO. 137,518 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Leon Martinez Sandra                                                                                     CC.****40,440,381

CERTIFIES

That according to that stated in Minute No 1,070 dated August 29, 2008, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on October 30, 2008, under NO. 143,898 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Echeverri Carvajal Maria Isabel                                                                                     CC. ****43,626,497

CERTIFIES

That according to that stated in Minute No 1,074 dated November 14, 20087, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on March 18, 2009, under NO. 147,374 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Mejia Meza Cesar Augusto                                                                                     CC. ****71,711,118

Legal Representative

Antequera Jessica                                                                           CC.****32,759,642

CERTIFIES

That according to that stated in Minute No 1,084 dated December 11, 2009, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on February 12, 2010, under NO. 156,422 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

Riobo Cortes Alberto Carlos                                                                                     CC.*****9,285,398

CERTIFIES

That according to that stated in a Private Document, dated November 17, 2005, granted in Medellin and registered in this Chamber of Commerce on November 24, 2005 under No 121,035 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative Bondholders

FIDUCIARIA CORFICOLOMBIANA S.A.                                                                           Ni.****800,140,887

CERTIFIES

That according to that stated in a Private Document, dated April 21, 2009, granted in Medellin and registered in this Chamber of Commerce on April 24, 2009 under No 148,420 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative Bondholders

HELM TRUST S.A.                                                                           ****************

CERTIFIES

That according to that stated in Minute No 72 dated March 04, 2005, corresponding to the Board of Directors in Medellin, for the corporation: CEMENTOS ARGOS S.A. ACRONYM ARGOS S.A. which relevant part was registered in this Chamber of Commerce on April 25, 2005, under NO. 117,143 of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Legal Representative

DELOITTE &TOUCHE LTDA                                                                           Ni.****860,005,813

CERTIFIES

That according to that stated in a Private Document, dated May 10, 2010, granted in Bogotá by Deloitte & Touche Ltda, registered in this Chamber of Commerce on May 24, 2010 under No 159,177of the respective book, the following appointments were made:

Title/Name                                                                                     Identification

Designated: Head Statutory Auditor

Cabrales Pinto Olga Liliana                                                                           CC.****52,536,134

Designated: Deputy Statutory Auditor

Perez Florez Viviana Estela                                                                           CC.****22,734,703

CERTIFIES

That no subsequent registrations of documents referring to the modification, dissolution, liquidation or appointment of legal representatives of the before stated corporation appears in this Chamber of Commerce.

CERTIFIES

That it was last renewed on: March 30, 2010.

The information regarding embargos of the establishment is provided in Registration Certificates, and that referring agreements subject to registration, in Special Certificates.

CERTIFIES

That those registration documents certified herein become final five workdays after the corresponding registration as long as they are not the object of appeals for replacement before such entity and/or appeal before the Industry and Commerce Superintendency within such established period.

ANNEX 2- BOUNDARIES AND MEASUREMENTS OF LOT C-2

ANNEX 3- FACADES AND FLOOR PLAN

ANNEX 4- ROADWAY SECTIONS

Minute No. 2

EXTRAORDINARY MEETING OF THE SHAREHOLDERS OF

PRICESMART COLOMBIA S.A.S.

(Legalized copy)

The Meeting of Shareholders of PRICESMART COLOMBIA S.A.S. met in the city of Bogotá D.C. on May six (6), two thousand and ten (2,010), at 9:00 a.m., AT THE OFFICES LOCATED AT Calle 67, No. 7-35, Office 1204 of this city, not requiring a prior call to such since the shareholders of the corporation were all present and duly represented.

Those present and duly represented were the following shareholders who hold 20,000 shares, that is to say 100% of the subscribed and paid-in capital of the corporation:

SHAREHOLDER	SHARES	%	REPRESENTED BY
PRICESMART, INC.	20,000	100%	Manuela Villa González
TOTAL	20,000	100%

Also present was Margarita Martínez González, in her capacity as special guest in the meeting. Dr. Margarita Martinez González read the following  agenda out loud, and such was unanimously approved by all those present:

1.   Appointing the Chairman and Secretary of the Meeting.

2.   Verifying the Quorum

3.   Authorizing a third party to sign the Promise of Purchase Agreement of a Real Property located in the city of Barranquilla.

4.   Reading and Approving the Minutes of the Meeting.

1.Appointing the Chairman and Secretary of the Meeting

Dr. Manuela Villa González is appointed as the Chairman of the Shareholders’ Meeting and Dr. Margarita  Martínez González is appointed as the Secretary of such Shareholders’ Meeting.

2.   Verifying the Quorum

The Secretary informed that the entire 20,000 shares, equaling one hundred percent (100%) of the subscribed and outstanding shares are represented, as stated in the Shareholders’ Book of Records and that, therefore, the necessary quorum to hold and make decisions was obtained.

3.   Authorizing a third party to sign the Promise of Purchase Agreement of the Real Property located in the city of Barranquilla

Taking into account the statutory limits established regarding the capacity of the Legal Representative to enter into agreements or businesses for a sum greater than twenty million pesos ($20,000,000), the Chairman of the meeting stated the need to authorize the Legal Representative and that such, in turn, grant a special power of attorney to Mr. Rodrigo Calvo, Costa Rican citizen, of legal age, identified with Passport Number 107930239, issued in Costa Rica, who may act on behalf and in representation of the corporation PRICESMART COLOMBIA S.A.S., so as to sign the Promise of Purchase Agreement for a land owned by the corporation CEMENTOS ARGOS S.A. This corporation owns two plots of land of a large extension referred to as: (I) LOT D-2”, identified with real estate registration folio number 040-390709 of the Office of Public Instr uments of Barranquilla, with an area measuring 65241.10 m2; and (II) “PAVAS-MOLINA LOT”

Identified with real estate registration folio 040-401515 of the Office of Public Instruments of Barranquilla with an area of 390 hectares and 7,684.88 m2, Such lots shall be joined together for the development of the Portal de Alejandría Urbanization, where a portion of the land, referred to as Lot C-2 shall be detached and in accordance with the topographic map that is attached, shall measure approximately 20,502 m2.

Likewise, Mr. Rodrigo Calvo is authorized to advance and execute all the procedures required to acquire, by way of Sale, the full ownership and possession rights, of Lot C-2, once such lot is duly detached, established and separated.

After discussing the before mentioned proposal, the Shareholders’ Meeting unanimously approved the decision in the previously stated terms.

4.   Reading and Approving the Minutes of the Meeting

Having discussed the complete contents of the agenda, the Shareholders’ Meeting called for recess at 10:00am, while the corresponding minutes of the meeting were drawn up. Aat 10:30am the meeting was reinitiated and these Minutes were read and unanimously approved by 100% of the subscribed and paid-in shares of the corporation present.

Proof that all the decisions made at this meeting were approved by the single shareholder, whereby 100% of the subscribed and paid-in capital of the corporation was represented was provided. The meeting was concluded at 11:00am.

                                                            

MANUELA VILLA GONZÁLEZ                                                                                     MARGARITA MARTÍNEZ GONZÁLEZ

Chairman                                                                           Secretary

This is a genuine and complete copy of the minutes of the meeting and is contained in the Book of Records of the corporation

MARGARITA MARTÍNEZ GONZÁLEZ

Secretary.

SPECIAL POWER OF ATTORNEY

The undersigned, PAULA SAMPER SALAZAR, Colombian citizen, of legal age, domiciled in the city of Bogotá, Republic of Colombia, identified with Identity Card number 51,854,274, issued in the city of Bogotá, D.C. acting in her capacity as legal representative of the corporation PRICESMART COLOMBIA S.A.S., a corporation domiciled in the city of Bogotá (from here on in the “Grantor of the Power of Attorney”), all of which is stated in the Existence and Representation Certificate of the corporation, hereby grant this broad and sufficient SPECIAL POWER OF ATTORNEY, to Mr. RODRIGO CALVO, Costa Rican citizen, of legal age, domiciled and resident of the city of Miami, USA, identified with Passport Number 107930239, issued in Costa Rica (from here on in referred to as the “Attorney-in-Fact”) who may act on beh alf and in representation of the corporation PRICESMART COLOMBIA S.A.S. so as to carry out and execute the following tasks:

1.   To sign, on behalf of the Grantor of the Power of Attorney, in the capacity of the Promissory Buyer, the Promise of Purchase Agreement through which the Grantor of the Power of Attorney is to acquire the lot owned by the corporation CEMENTOS ARGOS S.A., which shall act as the Promissory Seller. This corporation owns two plots of land or a large extension referred to as: I) LOT D-2”, identified with real estate registration folio number 040-390709 of the Office of Public Instruments of Barranquilla, with an area measuring 65241.10 m2; and (II) “PAVAS-MOLINA LOT”, identified with real estate registration folio 040-401515 of the Office of Public Instruments of Barranquilla with an area of 390 hectares and 7,684.88 m2, Such lots shall be joined together for the development of the Portal de Alejandría Urbanization, where a portion of the land, referred to as Lot C-2 shall be detached and in accordance with the topographic map that is attached, shall measure approximately 20,502 m2.

2.   To advance and execute all the necessary processes to acquire, by means of the purchase and sale, the full ownership and possession right on Lot C-2, once this lot has been duly detached, established and separated.

3.   Request the information required to fulfill his duties before any Colombian authority

4.   Negotiate and sign any document required and carry out the relevant acts so as to ensure the execution of the previously mentioned duties.

The Attorney-in-Fact is hereby authorized to replace this Power of Attorney granting such to whomever he considers necessary.

Signed in the city of Botogá on May six (6), 2010 to certify the above stated.

PAULA SAMPER SALAZAR

Legal Representative

PRICESMART COLOMBIA S.A.S.

c.c. 51,854,274 Bogotá

EX-10.6

ADDENDA  NO.  1 TO THE PROMISE OF PRUCHAS AGREEMENT SUBSCRIBED BETWEEN CEMENTOS ARGOS S. A. AND PRICESMART COLOMBIA SAS

The undersigned, namely, on the one hand, CAMILO JOSE ABELLO VIVES, male, of legal age, identified with Identity Card number 80.418.493 issued in Usaquén (Cundinamarca); acting in his capacity as Legal Representative of CEMENTOS ARGOS S. A.,a corporation identified with TIN. 890.100.251 as shown on the existence and legal representation certificate issued by the Chamber of Commerce of Barranquilla and that constitutes an integral part of this Agreement in the form of ANNEX 1 – EXISTENCE AND LEGAL REPRESENTATION CERTIFICATE OF CEMENTOS ARGOS S. A., and whom from here on in and for all the effects of this Agreement shall be referred to as THE PROMISSORY SELLER ; and, on the other hand, ALVARO JOSE HERNANDEZ BARRIOS, identified with Identity Card No.72.131.410, issued in Barranquilla, acting in his capacity as Special Proxy of PRICESMART COLOMBIA SAS, a business corporation identified with TIN: 900.319.753-3, duly established and organized in accordance with the regulations of the Republic of Colombia, according to the power of attorney granted by Dr. PAULA SAMPER SALAZAR; in her capacity as Legal Representative of such corporation, as show non the existence and legal representation certificate issued by the Chamber of Commerce of Bogotá and that constitutes an integral part of this Agreement in the form of ANNEX 2 – SPECIAL POWER OF ATTORNEY AND EXISTENCE AND LEGAL REPRESENTATION CERTIFICATE OF PRICESMART COLOMBIA SAS; according to the granted power of attorney, and who fr om here on in and for all the effects of this Agreement shall be referred to as "THE PROMISSORY BUYER" and who along with THE PROMISSORY SELLER, shall be referred to as THE PARTIES, have signed a Promise of Purchase Agreement, on June 18, 2010, before the Third Notary Office of the Circuit of Barranquilla, which we mutually and in the terms of the initially subscribed agreement, wish to modify as follows:

CONSIDERATIONS:

1.   That the parties in mutual agreement have decided to modify the Fourth Clause, so as to adjust such to the new desires of the parties.

2.      The parties likewise agree to set the date on which the AGREEMENT was actually signed, in accordance with the following £t

CLAUSES:

FIRST: EXISTING CLAUSE.- As per the express desires of THE PARTIES, the Fourth Clause, second of the Agreement initially signed, shall be modified to read as follows:

FOURTH: SECURITY DEPOSITS. THE PARTIES, in mutual agreement, have decided to include in this Promise of Purchase Agreement, security deposits, which enable the possibility of THE PROMISSORY BUYER to exercise the right of redemption from the business at any time, paying the value established further on here in, without this being understood as a breach on its part. THE PARTIES have established the following for the redemption adn payment of the security deposits:

4.1 If the redemption right is exercised within forty-five (45) days following the signing of this Promise of Purchase AGREEMENT, the value of the security deposits shall be ONE HUNDRED MILLION PESOS ($100.000.000 –legal currency of Colombia) and

-v

4.2 If the possibility of the right of redemption is exercised after the forty-fifth (45th) day of the signing of this AGREEMENT, the value of the security deposit shall be the sum of FIVE HUNDRED MILLION PESOS ($500.000.000- legal currency of Colombia). Given that THE PROMISSORY SELLER, upon the signing of this agreement receives the sum of ONE HUNDRED MILLION PESOS ($100.000.000), such sum shall be considered to be paid towards the value of the security deposit and THE PROMISSORY BUYER will have a term of thirty (30) calendar days, starting as of the day on which the right of redemption begins, to pay the pending difference with regard to the agreed on value.

Paragraph:     Manner of Exercising the Possibility of Redemption.-     THE PROMISSORY BUYER shall be entitled to the right of redemption of this agreement for any reason whatsoever; without having to justify itself and a simple written notice provided to THE PROMISSORY SELLER shall suffice, in the terms set forth in the Sixteenth Clausse of this AGREEMENT. In the event that THE PROMISSORY BUYER should decide to exercise its right of dedemption, it must pay THE PROMISSORY SELLER, THE SUMS REFERRED TO IN TH IS Clause and in the terms therein established.

SECOND: ACCURACY REGARDING THE DATE OF THE SIGNING OR THE PROMISE OF PURCHASE AGREEMENT INITIALLY SUBSCRIBED BY THE PARTIES.-  THE PARTIES, with the purpose of correcting and accurately stating the date of the signing of the AGREEMENT initially subscribed by them, define the date of June eighteen (18), two thousand and ten (2010) as such. For all the effects of calculating the terms and others that are similar, established in the AGREEMENT, such shall be the applicable date. .

THIRD: INITIAL TEXT.- In that which has been modified, THE PARTIES shall continue to abide by the text of the Purchase Agreement initially subscribed and in effect between them.

Signed in the city of Barranquilla by THE PARTIES; on July __ , 2010, on two duplicates, each destined for each of THE PARTIES.

THE PROMISSORY BUYER                                                                          THE PROMISSORY SELLER

PRICESMART COLOMBIA SAS                                                                 CEMENTOS ARGOS S.A.

TIN: 900.319.753-3                                                                                          TIN. 890.100.251-

ALVARO JOSE HERNANDEZ BARRIOS

C. C. No.72.131.410 de Barranquilla

Special Proxy     

EX-10.7

ADDENDA NO. 2

TO THE PROMISE OF PURCHASE AGREEMENT SUBSCRIBED BETWEEN

CEMENTOS ARGOS S. A. AND PRICESMART COLOMBIA SAS

The undersigned, namely, on the one hand, CAMILO JOSE ABELLO VIVES, male, of legal age, identified with Identity Card number 80.418.493 issued in Usaquén (Cundinamarca); acting in his capacity as Legal Representative of CEMENTOS ARGOS S. A.,a corporation identified with TIN. 890.100.251 as shown on the existence and legal representation certificate issued by the Chamber of Commerce of Barranquilla and that constitutes an integral part of this Agreement in the form of ANNEX 1 – EXISTENCE AND LEGAL REPRESENTATION CERTIFICATE OF CEMENTOS ARGOS S. A., and whom from here on in and for all the effects of this Agreement shall be referred to as THE PROMISSORY SELLER ; and, on the other hand, ALVARO JOSE HERNANDEZ BARRIOS, identified with Identity Card No.72.131.410, issued in Barranquilla, acting in his capacity as Special Proxy of PRICESMART COLOMBIA SAS, a business corporation identified with TIN: 900.319.753-3, duly established and organized in accordance with the regulations of the Republic of Colombia, according to the power of attorney granted by Dr. PAULA SAMPER SALAZAR; in her capacity as Legal Representative of such corporation, as show non the existence and legal representation certificate issued by the Chamber of Commerce of Bogotá and that constitutes an integral part of this Agreement in the form of ANNEX 2 – SPECIAL POWER OF ATTORNEY AND EXISTENCE AND LEGAL REPRESENTATION CERTIFICATE OF PRICESMART COLOMBIA SAS; according to the granted power of attorney, and who fr om here on in and for all the effects of this Agreement shall be referred to as "THE PROMISSORY BUYER" and who along with THE PROMISSORY SELLER, shall be referred to as THE PARTIES, have signed a Promise of Purchase Agreement, on June 18, 2010, before the Third Notary Office of the Circuit of Barranquilla, which we mutually and in the terms of the initially subscribed agreement, wish to make the following modifications:

CONSIDERATIONS:

1.   That THE PARTIES, in mutual agreement, have decided to modify or introduce some changes to the Agreement initially subscribed, so as to adjust it to its new agreements.

2.   The required adjustments emerge from the need to make technical adjustments that are convenient to THE PARTIES. With the object of accurately stating the technical adjustments required in order to adjust the Real Property, the referred to maps/designs are attached as follows in  ANNEX   5   -    TECHNICAL DESCRIPTION:

ANNEX 5.1-    SITE LAYOUT OF STAGE II OF PORTAL DE ALEJANDRÍA: (presentation made by THE PROMISSORY SELLER) in which the location of the land to be purchased by THE PROMISSORY BUYER and the design of the warehouse to be built by PriceSmart can be observed. -     \

Addenda No. 2 - Cementos Argos/PriceSmart Colombia Promise of Purchase Agreement

Page 2 of 4

ANNEX .2 – PARALLEL CUTTING OF ROADWAY 53: Shows the parallel cutting of Roadway 53 indicating the elevation of the terrace (level 50,50) on which PriceSmart shall be built in reference to Roadway 53 and how it will be definitely established in relation to the adjacent lot and the current land of the property.

ANNEX 5.3  -  LEVEL PLANS:  Once we are clear about the design of the PriceSmart property in the II Stage of Portal de Alejandría, we will be able to observe if significant differences in elevation exist between the property to be purchased by THE PROMISSORY BUYER and the adjacent streets, namely Roadway 53 (existing), Roadway 55 and Street 106, to be built by the PROMISSORY SELLER. This difference in elevations was greater and after various coordination and design meetings between the parties, an agreement was reached regarding the need to adjust the elevations of Roadway 55 and Street 106. The same ANNEX 5.3 – LEVEL PLANSindicates the necessary elevations on both roads adjacent to the PriceSmart warehouse on a terrace at level 50,50. The elevations of such roads in relation to the design of the PriceSmart site, in whole, can be clearly observed. Finally, it is agreed and understood that upon changing the elevation of Roadway 55 and Street 106, the complete infrastructure supporting these roadways must be adapted to the new elevations contained in annex 5.3 – LEVEL PLANS

ANNEX 5.4 – DRINKING WATER, SEWER AND RAIN WATER NETWORK PLANT: This Annex describes the final modification made to the rainwater, sewer and drinking water designs. ANNEX 5.4 – DRINKING WATER, SEWER AND RAIN WATER NETWORK provides a view of the path of the piping indicating the diameters, elevations and input points to the property that THE PROMISSORY BUYER wishes to purchase.

3.   That such modification shall be contained in this document as per the following

CLAUSES:

FIRST: ADDITION TO THE PURCHASE VALUE OF THE LAND.- THE PARTIES have agreed that the price of the real property object of this Promise of Purchas Agreement shall be increased to the sum of FOUR HUNDRED AND THIRTY-TWO MILLION PESOS ($432,000,000 –legal currency of Colombia), thus producing a new price for the real property ascending to the sum of TWELVE THOUSAND ONE HUNDRED AND THIRTY THREE MILLION, EIGHT HUNDRED THOUSAND PESOS ($12.133.800.000).^\

Addenda No. 2 - Cementos Argos/PriceSmart Colombia Promise of Purchase Agreement

Page 3 of 4

Regarding the method of payment, THE PROMISSORY SELLER ratifies that on the date of the signing of this Addenda it had already received the sum of ONE HUNDRED MILLION PESOS ($100,000,000) whereby the Payments agreed on under numbers 3.2 and 3.3 of the Third Clause of the initially signed Agreement are pending and shall be established as follows:

1-             The sum of SEVEN THOUSAND NINE HUNDRED MILLION PESOS ($7.900.000.000) on the date on which the Public Deed of Sale is granted and the real property is effectively delivered, in this way complying with this AGREEMENT

2-             The sum of FOUR THOUSAND ONE HUNDRED AND THIRTY-THREE MILLION, EIGHT HUNDRED THOUSAND PESOS ($4.133.800.000)  on March thirty

(30), two thousand and eleven (2011), as long as all the primary and partial urbanization works listed in the fifth clause have been fully and duly concluded. In the event that such works have not been concluded as per that stipulated in the fifth clause, this sum shall be withheld until the works are totally concluded.

In all that remaining, the clause shall remain as is.

SECOND:                        NEW                  DELIVERY DATE FOR THE INFRASTRUCTURE WORKS.- THE PARTIES, aware of the fact of that the new technical adjustments require additional time for the delivery of the infrastructure works, hereby agree that MARCH THIRTY (30), TWO THOUSAND AND ELEVEN (2,011) shall be the new date for the delivery of such. Fort he effects of contractual accuracy, it is hereby clarified that the referrenced works are contained in the initial paragraph of the Fifth Clause of the AGREEMENT that has already been signed and under numbers 5.1, 5.2, 5.3, 5. 4, and 5.5 of such agreement..

ANNEX 5.1- SITE LAYOUT OF STAGE II OF PORTAL DE ALEJANDRÍA: ANNEX 5.2 – PARALLEL CUTTING OF ROADWAY 53: ANNEX 5.3 LEVEL PLANS    and ANNEX   5.4  -     DRINKING WATER, SEWER AND RAIN WATER NETWORK PLANT; pr ecisely contain the description of the technical adjustments that must be modified in the Promise of Purchase Agreement initially subscribed between the parties.

In all that remaining, the clause shall remain as is.

THIRD: AUTHORIZATION TO INITIATE WORKS.- On the date of the signing of this document THE PROMISSORY BUYER may begin any activity related with the construction of the Project on the Real property and any of the adjacent areas. THE PARTIES shall jointly coordinate all the activities possible, so as to be able to work simultaneously on their projects. THE PROMISSORY BUYER states to be aware of and bound to comply with the provisions and requirements regarding security

Addenda No. 2 - Cementos Argos/PriceSmart Colombia Promise of Purchase Agreement

Page 4 of 4

administration that for such effect are contained in the internal hiring manual of Cementos Argos S.A.

FOURTH: INITIAL TEXT—In all that not modified in this document, THE PARTIES shall continue to abide by the AGREEMENT initially subscribed between them and that modified through Addenda No. 1

Signed in the city of Barranquilla by THE PARTIES, on October twenty-second (22), 2010 on two (2) duplicates, each destined for each of THE PARTIES.

THE PROMISSORY SELLER CEMENTOS ARGOS S.A. TIN. 890.100.251-

AMILO JOSE ABELLO VIVES

Legal Representative

THE PROMISSORY BUYER PRICESMART COLOMBIA SAS TIN: 900.319.753-3

   

ALVARO JOSE HERNANDEZ B.

c.c. No. 72.131.410 DE BARRANQUILLA

Special Proxy

EX-31.1

Exhibit 31.1

Certification

I, Jose Luis Laparte, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PriceSmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	January 7, 2011	/s/ JOSE LUIS LAPARTE
		Jose Luis Laparte
		Director, Chief Executive Officer and President
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, John M. Heffner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PriceSmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	January 7, 2011	/s/ JOHN M. HEFFNER
		John M. Heffner
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PriceSmart, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Annual Report on Form 10-Q of the Company for the quarterly period ended November 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	January 7, 2011	/s/ JOSE LUIS LAPARTE
		Jose Luis Laparte
		Director, Chief Executive Officer and President
		(Principal Executive Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PriceSmart, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Annual Report on Form 10-Q of the Company for the quarterly period ended November 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	January 7, 2011	/s/ JOHN M. HEFFNER
		John M. Heffner
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.